Market Hedge and Asset Allocation

Market Hedge and Asset Allocation

Since Trump rally began on Nov. 8,  financial stocks and infrastructure stocks had huge run.Goldman Sachs up over 30%,bank of America over 36%, among others.

This sprinter of financial stocks is totally due to Trump's promise to deregulate financial industry.
Based on Bloomberg's report, financial sector will probably engage on six reforms: capital requirement, small banks, shadow banks, stress tests, bank failure, and the Volcker rule. If president-elect Trump can be finalized as president tomorrow on electoral college vote, deregulation in financial sector will bring more risk-takers in lending and investing.

However,  the gains in financial stocks are building on hope, since deregulation will meet gigantic obstacle in Congress. In this regard, taking partial profit in the following financial stocks should be encouraged at this points: Goldman Sachs, Bank of America, Morgan Stanley,Northern Trust, J.P Morgan, etc. Also to hedge Trump's loss in electoral vote, it is prudent to trim some position in financial stocks.

Infrastructural stocks are also based on hope rather than facts. Anything in financial market based on hope is a little ahead of time, since right now nobody has faintest idea  on how to and when to start  rebuilding USA infrastructure, especially considering unpredictable Trump. The case in points: just after Trump won presidency-election, defense stocks-- Lockheed Martin and Northrop Grumman joined joyful  uptrend parade, but weeks later Trump smashed  Boeing and Lockheed Martin for high government military orders, upending those stocks run-ups.

If Trump indeed is president on Jan. 19, 2017, tech sector will possibly not have too much change as Trump said on Campaign at least during first year. Besides  last Wednesday Trump promised tech guys to serve them well. This is really confusing for Wall Street. On the other hand, Trump encouraged tech firms to back to USA by cutting their firms' tax. This is the main reason why most tech stocks have not participated recent rally without incurring meaningful pull back.Should crystal ball not appear in Trump plan next year, tech stocks would not take full relay baton to lead market until next April as usual.Some discrepancy between market perception and blurring reality exists here, providing a nice chance to profit from this market inefficiency.

Last week Fed raised federal fund rate by 25 basis points and promised another 3 raise in 2017. Market seems fully discounted this rate raise.But the market will face and figure out how the Fed to speed up rates hiking. Historically, hiking rates often happens in bull markets. When the Fed becomes hawkish, bond market and gold stocks will face headwind, while dollar  has tailwind. Do some asset re-allocation among bond, commodity and equity.

Chinese Yuan touched $0.14, devaluing  almost 6% after I said it had 7-15% devaluation room last year. But some market players predicted one US$ will be worth 7.4 Yuan. It may happen, but not guarantee. At this point, to my views, China's central bankers don't need to rush to defend its currency fall. Historically,  the price of financial vehicle seldom goes straight up to the sky from very bottom.


Gunning Ju

Market Analyst

From NYC

Will 2016 Parallel 2012?: Trump's win Surprised the Market

Will 2016 Parallel 2012?: Trump's win Surprised the Market: Trump's Win Surprised the Market Nov. 8's Trump win surprised the world and market. After initial panic in overnight futures mark...

Trump's win Surprised the Market

Trump's Win Surprised the Market

Nov. 8's Trump win surprised the world and market. After initial panic in overnight futures market, the USA market rebounded forcibly, leading by infrastructure and financial sectors, while FANGs ( Facebook, Amazon, Netflix, Google) and other tech stocks dropped without participating this Trump rally.

Before election, almost all pollsters predicted Clinton's win. Trump won electoral votes 290 over   Clinton's 232 while Clinton won popular votes 63 million vs. Trump 61.5 million by nearly 1.5 million votes. Most market watchers were wrong on election, but some very few were right:Jeffery Gundlach, Martin Armstrong, Sam Stoval, Jeffery Hirsch, and my friend Jone and Charles at Queens Flushing Library.

In fact, according to Sam Stovall's research, if S&P500 fell between August and October, historically, incumbent party will 83% likely lose election. This year from the end of July to the end of October, S&P500 dipped 2%, which again validated Stovall's findings.

Regarding two presidential candidates, I think that Mrs. Clinton is more qualified than Mr. Trump, consistent with the fact that more people in USA voted for Mrs. Clinton. Since 2000, I had been right on presidential election every time based on presidential debates, candidate's experience and demestic and international knowledge plus education background. This time I am wrong, even though Mrs. Clinton won 3 presidential debates by huge margin.  So why nearly all mainstream media were wrong on this election? As my friend Jone Bell puts, this is a revolution and a fight between social media and mainstream media with former winning out.

If social media won election and can impact other person's political views, we can believe that mainstream media will still have far more impacts on the financial markets than social media. This is because more informative people still regard mainstream media holds more power than social media in financial markets.

Back to the market, this Trump rally lacks FANG's participation and may send some signal for the market weakness ahead. But short-term market uptrend still has leg for two main reasons: 1. Market sentiment still not so hype; 2. Bullish market seasons--S&P500 sending bullish signal on Nov 7. right before election day, which may say that regardless of who wins presidential election, it is the time to be long the equity market.

Happy Thanksgiving Day to All.

Gunning Ju

A market analyst from New York

Will 2016 Parallel 2012?: Presidential Election and Bullish Market Season

Will 2016 Parallel 2012?: Presidential Election and Bullish Market Season: Presidential Election and  Bullish Market Season  Weekend GOP presidential Donald Trump's lewd remarks on Entertainment Tonight Hos...

Presidential Election and Bullish Market Season

Presidential Election and  Bullish Market Season 

Weekend GOP presidential Donald Trump's lewd remarks on Entertainment Tonight Host Nancy O'Dell in 2005 once again created another headlines for all media.Some GOPers even asked Mr. Trump to quit now.

Tomorrow  will be the second presidential debate.Hillary Clinton won the first debate on September 26; Vice presidential debate winner went to GOP's Mike Pence over Democratic's Tim Kaine. In the first debate Mrs. Clinton obviously showed more politic intelligence and qualification than Mr. Trump. However in vice presidential debate, Mr. Kaine erroneously was impatient to interrupt Mr. Pence, creating a sense of Pence's higher level of debate.Historically, first debate has far more impact on final election results than the other two.

Based on Predictwise.Com's data,   Mrs. Clinton winning odds increased to 87% from 69% before the first debate, efficiently stopping Mr.Trump's momentum. Like stock market, trend in motion tends to continue. If this is true, Mrs. Clinton will win in November 8 election.

Mrs. Clinton economic policy focuses on investment and growth while Mr. Trump wants to reform domestically and internationally.In USA too much reform doesn't seem to be passed easily when Congress has divisive views, which will create a gridlock that in turn will have less uncertainties for the market. This is why the market likes Mrs. Clinton so far.

Next week will start the third quarter earning and bullish season.October is the jinx month due to crashes in 1929 and 1987, the 554-point drop on October 27, 1997, back-to back massacres in 1978 and 1979, Friday the 13th in 1989, and meltdown in 2008. Also October is a  bear killer and turned tide in 12 post-WWII bear markets: 1946, 1957, 1960, 1962, 1974, 1987, 1990, 1998, 2001, 2002, and 2011. These facts are quoted from Yale Hirsch's and Jeffrey Hirsch's stock Trader's Almanac, 2017== its 50th anniversary. Tip my hat to my friend Messrs. Hirsch.  

So in the next four weeks market will not likely to drop too much, and will continue to engage time correction rather than magnitude correction.

Gunning Ju

 market analyst

Flushing, New York

Will 2016 Parallel 2012?: Rising Tech Index Imply Hilary Clinton Win and Fed...

Will 2016 Parallel 2012?: Rising Tech Index Imply Hilary Clinton Win and Fed...: Rising Tech Index Imply Hilary Clinton Win and Fed Next Move Recent market gyration disguises tech index strength. Over the past four week...

Rising Tech Index Imply Hilary Clinton Win and Fed's Next Move

Rising Tech Index Imply Hilary Clinton Win and Fed Next Move

Recent market gyration disguises tech index strength. Over the past four weeks, S&P 500 dropped 2.5% from its high, while Nasdaq Index down only 0.8%. Tech Index strength resulted from Apple, Alibaba, Amazon, Google, Facebook, Netease, Priceline, among others, each of which shows its uptrend intact.

In spite of tech stocks strength, many market players still think market will face tremendous challenge ahead. Below we continue our comparison between 2016 and 2012, two election years.

In 2012, S&P 500 had two corrections: One from March to June, S&P 500 corrected 11%, just 100 points below previous year high, after which S&P 500 entered 21.5% shallow short bear market mainly caused by European debt crisis; the other 8.9% correction happened between September to November with Hurricane Sandy and presidential elections  as two uncertainties.

Back to 2016. In 2015 S&P 500 dropped 15.2% in 10 months caused by China's stock market collapse and the Fed's first move. Based on Ned Davis' bear market definition, this S&P 15.2% corrections was a bear market. In June 2016, S&P 500 dropped 6% due to Brexit fear. So what parallels can we draw from 2012 for the rest of the year?

Now the market similarly faces two uncertainties: the Fed fear and election.The  Fed fear has been priced in the market for so long. Any real move and clear guidance for the next move will lift the veil, and market will melt up. As to election, most Silicon valley tech gurus endorsed Hilary Clinton, helping Nasdaq Tech Index continue to climb wall of fear.

So in 2012 after a 21.5% bear market in 2011, S&P 500 had two corrections: drop 11% between March to June, and down 8.9% from September to November 8 election;

In 2016, after a 15.2% bear market, S&P 500 had a 6% correction in June. How about market  from September to November 8 election?   In terms of above  2012 and 2016 similarities, my best guess is that S&P will drop 3-5%. Given that it has already down 2.4%, S&P 500 downside should be very limited. This optimistic view implies that the Fed will likely raise rates next week and say the the future move will be based  on macro-data points.

So buying any dip will still be a good investment strategy this year.

Gunning Ju

From New York