Jim: Hello Adam, and thanks for joining us. Another earnings season upon us and, with stocks perceived to be at lofty levels, some uncertainty out there currently?
Adam: Pleasure- The beauty of the market is that there is always uncertainty at some level. There is an old saying on Wall St: The market likes to climb a wall of worry. The key is to make sure you remain disciplined in your approach, pick your stocks carefully, and manage your risk well. This allows you to keep a level head and focus on what matters most- How the market is actually behaving: Price Action. If you allow yourself to get caught up in all the uncertainty- it will be very difficult to successfully navigate the markets profitably.
Jim: So what are your thoughts about earnings, and the market generally right now?
Adam: I believe the market is still attractively valued right now especially when you consider the lack of viable alternatives. The US stock market remains the best game in town (thanks to the billions of dollars the Fed and other Central Banks print everyday to help stimulate it) – This forces large institutions into stocks and as long as they continue buying- the market should continue to rally. Last year (2013)- we saw the benchmark S&P 500 soar a very impressive 30%. I went back and did an exhaustive study of the relationship between the market and the economy (GDP). My research shows that the the stock market typically moves 6-12 months ahead of the economy. We see this time and time again going back nearly every cycle since the late 1800’s-Today. Armed with this knowledge, one should expect a pick up in GDP (stronger economy) in 2014. That should translate into stronger corporate earnings and we are beginning to see that from the large banks that have reported so far. Bank of America (BAC), Goldman Sachs (GS), JP Morgan (JPM) and Wells Fargo (WFC) all reported strong numbers and are trading near multi-year highs. That is very healthy action.
Jim: And, playing devil’s advocate for a second, what about the so-called real economy? Is Main Street spending? How are they affected by government shutdowns, bad weather, unemployment, etc?
Adam: That should kick in later this year. So far, spending on Main Street has been tepid at best. Main St. is still suffering from Post Traumatic Stress from the 2008 financial crisis. That psychological damage will take a long time fully recover. In the interim, Retail sales were reported earlier this week. The data showed that during the holiday season sales were lackluster at best (typically, the holiday season is the strongest of the year for retailers). In fact, just this morning, Best Buy (BBY), the country’s largest electronics retailer and one of the strongest stocks in the S&P 500 last year, just reported earnings. The stock plunged a rather violent 30% right at the open. That clearly shows more time is needed for the Main St to fully recover.
Jim: So investors would be best to stick to industry groups that less reliant on Main Street currently?
Adam: Not necessarily because even as Main Street takes its time to recover- Wall Street has fully recovered and the S&P 500 and Dow are trading at new all time highs! Again, my logic is that Wall Street moves 6-12 months ahead of Main Street. Since 2013 was a great year for Wall Street (S&P 500 up 30%), we should Main Street recover later this year. Right now it is important to invest in areas you understand and that stand to benefit from a stronger global recovery. The simple fact is that Main Street is recovering (hasn’t recovered already) but by definition, the economy is growing during that recovery and a growing economy is great for Wall Street. Therefore, if you pick your stocks carefully, you should do very well providing Main Street continues to recover.
Jim: Okay, so what are your favorite trading ideas moving forward?
Adam: Financials (XLF), housing (XHB), HealthCare (XLV), BioTechs (IBB) and Tech stocks (QQQ) all remain attractive areas in the market right now.
[1/16/14 9:59:08 AM] Adam Sarhan: The logic to own healthcare and biotech stocks is simple. Everyday, scores of baby boomers are retiring (or getting closer to retiring) which will increase demand for healthcare and biotech stocks in the future- some of the developments in that space are truly remarkable- which is very promising for investors. In fact, one of the stocks I gave out months ago only to Midas Wave Alert subscribers- is a health care stock and it is now up over 20% from when the alert was published just a few short months ago, which perfectly illustrates my thesis.
Jim: Fabulous, thanks very much, Adam.
Adam: As always, my pleasure…