Coming out of the Great Financial Crisis, post-2009, every time there was a slight hint of bad economic data, doomsdayers professed from their echo chambers that another major recession was coming. Fear got lapped up, people dithered investing in the markets - missing out on massive wealth creation - and the rational pundits were summarily disregarded and snickered upon.
Quantitative Easing was smirked upon - downright abhorred - and one common disdain among naysayers was: stocks were moving up on low volume. Seventeen years hence, the doomsdayers and naysayers are still at it. At the end of the day, the bulls were right. Period.
The recent rally has taken many by surprise; however, there were signs that the sell-off was coming to an end.
I took Trump’s statement as a hint that the sell-off was coming to an end and he was getting nearer to ending the conflict with Iran. There are two things that one should never do in the markets:
Never fight the Federal Reserve.
Never bet against the President. There is a reason the President’s Working Group on Financial Markets - colloquially known as the Plunge Protection Team - exists.
I expect this rally at the index level to continue. That doesn’t mean there won’t be pockets of weakness. Some sectors and stocks will underperform.
So, it is simple: buy the dips at the index level. That said, there is some trouble brewing on the employment front.
Source: US Bureau of Labor Statistics, Federal Reserve Bank of St. Louis
Historically, whenever the Total Monthly Nonfarm for All Employees turns negative, the economy gets into trouble. That has not happened yet, as per this data series (PAYEMS). Even though the recent trend is downward-sloping and close to turning negative, the prevailing view is that, in case of trouble, the Federal Reserve (Fed) will intervene with rate cuts and, if required, inject liquidity into the system. The post-GFC Fed playbook is intact. There is no point in getting into a philosophical debate about whether it is right or wrong. Just buy gold and income-generating assets like quality stocks to hedge against fiscal and monetary profligacy. However, I would watch this data point closely. If it were to turn negative, I would reduce exposure to equities.
Given that, let’s look at the current state of the housing market, how homebuilders stack up, and how PulteGroup (PHM) is doing.
