While July started off the same way that many months have recently, which is more gains for large-caps and tech, the markets experienced a massive shift within U.S. equities that it hasn’t seen in a while. A cooler than expected inflation number in June raised the market’s expectation for more rate cuts later this year and that resulted in a revival in small-caps, value and dividend stocks.
In our last market update on November 7th, our contention was the markets were mired in a 2-year bear market and a major pain point was the lack of upside participation from most stocks outside the “magnificent-7”.
From a macro point of view, the U.S. market indexes have generated flat to negative returns for almost the past three years, with large rallies and drops producing no returns for investors outside a select group of technology stocks.
We’re halfway through 2022. Here is J2 Capital Management’s mid-year update and what to expect going forward.
The stock markets are officially in or approaching bear market territory but it’s much worse than that beneath the surface. The Bull market since 2009 appears to be over. Here's what J2 Capital is doing.
2020 will forever be remembered for both the pandemic that was unleashed upon the world as well as the policy responses to it. Investors will also remember it for the tremendous market volatility (in both directions) and more importantly, investor’s reactions to that volatility (again, in both directions!).
Roku (ROKU) is a company that J2 Capital Management has continued to have conviction in. The shift from traditional TV to streaming has continued to accelerate and sitting in the middle of this competition for eyeballs is Roku.
As we continue experiencing a year of financial uncertainty, here’s where J2 stands when it comes to cryptocurrency.
DraftKings (DKNG) is a company that has caught our attention here at J2 Capital Management. The recent tailwinds it's received from casino shutdowns as well as the legalization of sports betting across the U.S. has created an interesting opportunity. In this post, I cover the investment thesis behind the name, as well as the recent earnings, catalysts, and risks associated with the company.
While concerns related to COVID-19 continue to increase, the average mortgage rate has fallen to an all-time low, prompting a wave of refinancing activity.
Risk across the market, specifically in the momentum names is increasing and is not sustainable, at least in the short term.
For the past few weeks, J2 Capital started posting about the Coronavirus (Covid19) and it's the potential impact on the economy. We continued to highlight the risks from the virus but noticed that many were shrugging off the potential negative effects of the virus. This was a warning sign to us that the market would be at risk should the virus continue on its trajectory.
With the major run-up in stock prices, this has expanded companies' valuations off relatively flat earnings. 2020 will be a year of either living up to these high expectations or falling short, forcing investors to rethink their bullish mood despite an accommodative Fed.
Trade Wars, Fed Rate Cuts, Negative Interest Rates, Yield Curve Inversion, Trump Impeachment, Brexit, and Recession! Did I cover all the monsters in the room? Both advisors and clients all know the same information due to the internet and easier access to information. This has made sentiment poor and both advisors and clients have reacted by lowering equity allocations. Is this the fuel that keeps the market afloat?
From this Christmas Eve miracle, the U.S. Fed embarked on a series of interest rate and quantitative tightening walk backs. Not to be outdone, the European Central Bank, which just ended its credit infusions to its banking system, started walking back its plans to tighten monetary conditions by discussing more easing. To complete the coordination, China stepped in with massive liquidity credit injections to its state-owned corporations.
We believe that for the market to be back in an up- trend and out of a high-risk environment, we need to see a couple strong days in the market that put the RCI Indicator above 80. That would suggest to us that institutions feel comfortable enough with the market to be engaged again. Good earnings guidance will give cover to the risk-on trade being back in style. I believe we will find out by the end of October what kind of market we are in. For now, J2 Capital is holding higher-than-normal levels of cash across our models, waiting to see what the market’s next move is.
The market is currently confusing, messy, and not optimal for risk-taking. Intuitional program trading is beating up those trying to play the wiggles. We have done well managing the recent volatility by being early to sell down to cash. We want to be careful to not overthink things and get caught up in chasing markets up and down daily. A better investment environment will present itself but it’s not now.
We believe that given the euphoric rise with no pullback along with exuberant enthusiasm raises risks in the short term higher than we have seen in years. A pause would be healthy. Straight line advances in a 30-degree upward angle almost never stick no matter how good things are. Should stocks not pause, we would expect to see many months of gains given back very quickly.
A New Growth Stock Super-cycle Upon Us?
Markets move higher but momentum is stalling.