There are three types of people I listen to when it comes to investing: analysts, CEO's, and fund managers.
Analysts at investment banks are the ones who do quantitative, bottom-up fundamental work on companies and industries to come up with sales and earnings estimate models.
Also at investment banks, you have the top-down fundamental strategists who may or may not be economists, but who are equally quantitative and get to string together their team’s equity research across thousands of companies and all sectors of the economy.
The CEO's are, of course, crucial to getting a feel for the optimism and/or shifts in the success and sentiment of their business
es. After all, who knows their industry better? And despite their clear bias to impress, they have little incentive to deceive as all failed guidance or "forward-looking" statements will be brutally dealt with in their stock price.
Finally, the third group are those investors having to make all the quantitative buy and sell decisions on thousands of stocks and dozens of economic data points to grow their clients' money. I listen to some of these folks much more often than the first two groups.
Peak Growth… Real or Imagined?
In the video that accompanies this article, I go over the research I've been doing since mid-April on the potential earnings peak that's been driving a general malaise in the stock market.
I also review the initial bearish growls from investment bank Morgan Stanley back in April -- that confirmed what I was sensing -- when I posted the following on Twitter April 17...
U.S. stocks may be near cyclical top, valuations past peak, per Morgan Stanley: “There’s less reason to behave like it’s ‘morning in America’ than ‘Happy Hour' in America." Markets are “closer to the end of the day than the beginning.”
That was my quick summary of a Bloomberg story titled "Morgan Stanley Warns Markets the Best Times May Be Near an End." The Bloomberg staff summarized the piece this way...
"Investors need to prepare for downside as the end of the economic cycle is near and U.S. markets are priced for best case scenarios."
And just when you thought all that gloom might be evaporated in the sunny month of May as the stock market makes new 2-month highs, this week the Morgan Stanley Cross-Asset Strategy team led by Andrew Sheets further defined their bearish tilt.
In a report titled “The End of Easy,” Sheets and company wrote "2018 is seeing multiple tailwinds of the last nine years abate. Decelerating growth, rising inflation and tightening policy leave us with below-consensus 12-month return forecasts for most risk assets. After nine years of markets outperforming the real economy, we think the opposite now applies as policy tightens."
Who’s Buying Your Stocks?
Be sure to watch the video to see more quotes from that new Morgan Stanley report. And I also share some quotes from an important member of my favorite group, the fund managers.
To hear this excellent fund manager sound as cautious as he is now has given me pause to be very diligent in my hunt for evidence that the economy and earnings trends could reverse their current positive growth trajectories. (I just learned of his views yesterday, so I am still reviewing the analysis.)
My advantage in
not running billions of dollars like him -- and other greats I follow like Andreas Halvorsen of Viking Global, Steve Mandel of Lone Pine Capital, or David Tepper of Appaloosa -- is that I can be much more agile if I have to get out of great Technology positions like Apple ( AAPL - Free Report) , Micron ( MU - Free Report) , or NVIDIA ( NVDA - Free Report) .
And because I have followed some of these fund managers into fantastic secular growth stories like
Alibaba ( BABA - Free Report) and Facebook ( FB - Free Report) , I have done my homework alongside them for years so that I am not just following blindly.
It doesn’t hurt to see in this week’s SEC 13F filings, which were due by May 15 for all stock positions bought or sold in the first quarter, that Viking Global started a new position of 2.2 million shares in BABA after having sold out last year.
Meanwhile, David Tepper at Appaloosa sold 267K shares of BABA in Q1, but he still holds over 4 million. He probably needed the cash to buy the Carolina Panthers football team for an NFL record $2. 3 billion. Heck, I think that’s a U.S. sports franchise record!
In the video, I also show several earnings graphs from our Director of Research, Sheraz Mian. The most recent report where you can see full details is
Finally, I provide my probability-weighted target for the S&P 500 this year. Click on the video player and get all the goods!
Disclosure: I own shares of NVDA, MU, FB, and BABA for the Zacks TAZR Trader portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader service. Click Follow Author above to receive his latest stock research and macro analysis. Today's Stocks from Zacks' Hottest Strategies
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