What is the bull case on the S&P 500 right now??
I don’t understand what is keeping the market up. What are you playing for if you are long? Recession coming is almost consensus now and yet the market still holds up around 3,000. What are all of the bears missing?
The bear case is quite clear: -Fiscal benefit to the economy from tax cuts is fading; -Recession risks from elevated debt (credit card, auto where credit quality deteriorating, student loan, corporate); -Housing price growth slowing if not already peak; -Unemployment rate at peak (even the U6 is peakish) -China trade war is a headline risk; -Healthcare choking the consumer and will get worse else it’s reformed to provide much lower prices (which would in turn crash 20% of the US economy); -Already seeing recession in some countries; -2020 political risk: Biden winning feels like negative news, Bernie or Warren winning feels like awful news to the market on risks of a rollback in tax stimulus; -Business investment slowing; -Earnings entering recession; -Yet the s&p is still expensive on earnings.
The only bull case I can muster up is recession in 3 years rather than 1... but then you are playing a horrifically weak hand - you are a seller at the first data point indicating recession so why bother buying? You are better off going to Vegas and betting on 13-36 on roulette every year.
I’m looking for a fundamental explanation here rather than technical color (mumbo jumbo on Fibonacci levels) or trading color (eg corporate buybacks)
This is hard to argue with but what about (1) an enormously accommodative fed that keeps down borrowing costs and volatility, (2) massive domestic spending (eg infrastructure bill, defense) by a second term trump (he has to be the heavy favorite), (3) a potentially groundbreaking trade deal with China and (4) no sign of inflation to force higher rates (perhaps because automation has broken the relationship between unemployment and wage growth?).
These points seem silly after a 10 year bull market, but they’re mostly for the the sake of argument. Make of them what you will lol.
you must be new here, I'm the resident sucker/permabull/asshole of WSO, here's a thread I did about 9 months ago
https://www.wallstreetoasis.com/forums/a-contrarian-view-raging-bull
TLDR - I'm long term bullish, I've not seen broad based excesses that lead me to believe the downside is like the GFC or tech bubble. I own quality companies (low debt, reasonable valuation, dividend growth, lots of cash, etc.), have a long term time horizon, and so don't worry about this stuff too much.
finally, sentiment is in the fucking toilet, currently a 21 out of 100, and while this is only good as a short term indicator, it's times like these where you get your buy list ready, not flock into gold or US10's paying less than 2% - https://money.cnn.com/data/fear-and-greed/
Thanks
How would you respond to the below counterpoints (i am following the 4 numbered points in your previous post, albeit out of order)
Consumer balance sheets: debt service ratio only low because interest rates are low. Once inflation inevitably picks up we’ll see right through this and the current debt load becomes unsustainable.
CAPE: Nothing to say
Peak Margins: Aren’t we already starting to see this? I don’t care about this one quite as much frankly.
Old age of cycle: True, GDP recovery has been more shallow - that probably just explains why the recovery was able to be longer... but where is the future growth coming from when U6 is peak? Automation seems like a tough argument when business investment is stalling out.
No Excesses (not one of your 4 points but worth talking about!): Healthcare’s share of US economy has blown out of proportion - is the healthcare system not an excess?
thank you for your thoughtful read of my thread
consumer balance sheets - I don't need to educate you on this, moreso for the youngsters. the consumer is 2/3 of GDP, so this stuff really matters. true enough, if rates some up, that credit card debt will suck, and spending could take a dip, but my question is this: are people so overlevered that they cannot spend at all? correct me if I'm off base, but we're not there yet. also, during the most recent hiking cycle, the consumer debt service ratio actually didn't more hardly at all, it's been in the 9.5-10% range since 2012, hardly moving (got as high as 13.2% in 2007)
peak margins - you are correct, and actually margins are falling because we've got negative EPS growth with positive top line growth
old age of cycle - what I'm not saying is that we're recession proof. my base case is we'll have a mild one but that we're in a 20 year period where you NEED to be long the equity market. this is not 1999, this is not 1969 (the start of 10 year periods where you definitely did NOT want to be long equities). what I'm saying is that the shallowness of the cycle makes me reasonably confident that the drop won't be so bad. on future economic growth, you know we only grow by getting more people in the workforce or doing more with the same people. so either we get immigration to help us fix the problem or productivity growth. my opinion is this: I have no fuckin clue where it'll come from, my job is simply to identify the companies that can grow earnings, because guessing the direction of the economy or the GDP growth rate is not only foolhardy, it also has no impact on equity prices long term, earnings and valuation are what matters
sure, healthcare is a massive clusterfuck, it's insane all of the problems with it, but so far, hasn't impacted my portfolio meaningfully. I would gladly do this mental masturbation exercise with you over a glass of rioja and ponder how to fix our healthcare system, but at the end of the day, I'm only interested in allocating capital and trying to make money for myself and clients. when I look at my healthcare names or just the top 10 of the S&P healthcare index, there are certainly some names with tons of debt (PFE, BMY), there are still names that make sense (UNH, JNJ, MRK), and since I'm not a sector ETF guy, that's where I focus. the 28x earnings doesn't bother me if my companies are growing earnings, growing dividends, and aren't so overlevered that they can't ride out a cycle.