Ep. 52: Should You Be Worried About the Return of Volatility?

Ep. 52: Should You Be Worried About the Return of Volatility?

 


Download Episode

 

Last week the S&P 500 enjoyed the biggest one-week advance since 2013, gaining 4.3%. The index began 2018 with its best start to the year since 1987 followed by a 10% decline in just 9 trading days, and then proceeded to bounce off its 200-day moving average, reversing roughly half its losses in the process.

Quite a quick, volatile ride unlike anything we’ve seen in more than a year. We’ve gone from overbought to oversold and back to overbought again, but with volumes 22% lower on the move back up than during the slide down. It would seem not everyone is convinced the rebound will stick.

Adding to the renewed sense of volatility, following its disappointing December quarter results, Walmart (WMT) shares fell 10% on Tuesday, as Tematica’s investing mixologists Chris Versace and Lenore Hawkins discussed what is likely to drive the markets in the coming weeks and months and what data they will be looking for to confirm or refute their outlook.

Tematica’s dynamic duo point out that much of the enthusiasm for domestic equities is based on expectations concerning the impact of the recent tax reform legislation on the economy. A survey of Morgan Stanley analysts released last week, however, found that just 13% of companies’ tax cut savings are expected to go to increasing pay, bonuses or employee benefits, while 43% is expected to go towards stock buybacks and dividends. With only 10% of households owning 84% of all stocks in 2016, the benefits of that 43% is going to a small portion of the economy. While those upsized dividend payments could provide some safety net for stock prices we find it rather unlikely the dividend payments or increase in share price will materially alter consumer spending, given those households that will benefit most are already feeling pretty great thanks to the big run-up equities have already enjoyed.

Chris and Lenore also discuss some examples of Tematica’s investing themes playing out in the news:

  • Safety and Security gets yet another tailwind as companies look to tap into the increase in government spending.
  • China sits at the intersection of the Rise of the Middle Class with Content is King.
  • The intersection of Connected Society and Disruptive Technologies is on display with 5G at the 2018 Winter Olympics

 

 

Companies mentioned on this podcast

  • Albertson’s
  • Amazon (AMZN)
  • Arlington Capital Partners
  • CRSA
  • ECS Federal
  • General Dynamics (GD)
  • Home Depot (HD)
  • Hyundai (HYMTF)
  • Integrity Applications (IGAP)
  • Intel (INTC)
  • KT (KT)
  • Lockheed Martin (LMT)
  • Macfadden & Associates
  • MGM Resorts International (MGM)
  • Morgan Stanley (MS)
  • On Assignment (ASGN)
  • Rite Aid (RAD)
  • PAE
  • PricewaterhouseCoopers
  • Samsung (SSNLF)
  • Target (TGT)
  • Veritas Capital
  • Walmart (WMT)
  • Yum Brands (YUM)

 

 

Resources for this podcast:

 

Books we’re currently reading:

About the Author

Lenore Hawkins & Chris Versace
Lenore Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, strategic planning, risk management, asset valuation and operations optimization, her focus is primarily on macroeconomic influences and identification of those long-term themes that create investing headwinds or tailwinds. Chris Versace is Tematica's Chief Investment Officer and editor of Tematica Investing newsletter. All of that capitalizes on his near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks.

Comments are closed.