VIDEO: Trading strategies for a turbulent market
Welcome to my video interview with Jim Pearce, Chief Investment Strategist at Personal finance and Chaos merchant. Jim trained as a stockbroker and has been following Wall Street for over 40 years.
As the stock market recovery becomes volatile, now is the time to harness its expertise. Below the video player is a condensed version of the interview.
Jim, thanks for being here.
You’re welcome, but it’s not like I really have a choice. If I don’t make that call, I’m fired!
Ha. Well, over the years as a stock trader you have accumulated enough of a personal fortune that you don’t have to worry about paying your bills! Alright, let’s go to my first question: we are starting to see a “bad amplitude” on the stock market, which occurs when fewer and fewer inventory participate in the recovery. Is this a red flag, warning of a dying bull market?
Anytime there are more stocks going down than going up, it’s a sign that investors are losing faith in the stock market. It also means that most of the money goes into businesses that are seen as more resilient to a weaker economy.
We saw the same dynamic last year, especially with big tech stocks. They were seen as beneficiaries of the pandemic while social distancing restrictions forced most of us to work, learn and shop from home. This trend was reversed in the first half of this year, once vaccines began to be administered to the general public.
However, the Delta variant of COVID-19 has rekindled fears that the economy will have to shut down again. Since June 1, the highly technical NASDAQ has gained more than 10% while the Wilshire 5000 has only risen by half that amount.
As September advances, the consensus turns bearish, with many analysts calling for a correction by the end of 2021. What’s your take?
I think a market correction of 10% or more could easily happen in the next four to six weeks. In October, we’ll see the Labor and Inflation Reports for that month. At the same time, most companies will release their third quarter results as well as their forecasts for the rest of the year.
If any of these data points are worse than expected, it may trigger a correction.
Keep in mind that the S&P 500 is up almost 20% year-to-date, so a magnitude correction of around 10% would not be catastrophic. Also, we are due for a withdrawal.
We saw a market rotation earlier this year as investors shifted from growth stocks to value. But now growth stocks are back in the forefront, a trend mostly driven by a handful of big tech stocks. How long can large-cap tech stocks maintain their momentum?
I think large cap tech stocks can keep their momentum going until next year. They hold a lot of money and can use that money to buy back stocks in order to keep the stock price stable.
Most tech companies have fairly flexible business models. To keep costs under control, they can quickly increase production during good times and quickly reduce bad times. Additionally, demand for technology products and services tends to remain fairly constant even when consumers cut back on spending on other items.
However, all of this may not be enough to offset the potential damage caused by rising interest rates.
The Federal Reserve has indicated that it will soon “decrease”, that is to say gradually reduce, its asset purchases. How do you feel about the start of the Fed’s tapering and how dramatic do you think it will be at the start?
When the Fed begins to shrink will largely depend on how the September jobs and inflation data looks when those reports are released in October. Lately, inflation has been rising faster than expected while the economy has been creating new jobs more slowly than expected.
So far, the Fed has justified its very accommodating monetary policy on the grounds that job growth is more important than controlling inflation in the short term. However, if all we get out of it is higher inflation without job growth, the Fed could change gears.
When the Fed starts to decline, I expect it to start slowly and gradually increase over time. Even when the Fed declines, it continues to inject liquidity into financial markets but at a decelerating rate, so the decrease should not destabilize the markets.
As the New Year approaches, is there a big investing theme that comes to mind?
In recent times, so much attention has been paid to big tech stocks that the rest of the stock market has been largely ignored. Many companies have exceptional operating results, but their stock prices do not fully reflect their true value.
These stocks are about to take off soon. As smart money on Wall Street begins to take profits in big tech stocks, that same amount of money going to small businesses will have a disproportionate impact on their value.
I have been following this trend for several months and this transition may already be underway. If I’m right, it is possible to make a lot of money in the months to come by owning these kinds of stocks.
Thank you for your time.
Editor’s Note: My colleague Jim Pearce has created a tool that allows him to identify lightning-fast profit opportunities. It is also a tool that will not be available to anyone else. Not even existing Personal finance the subscribers.
As this proprietary tool finds new lucrative deals, Jim will only share them in his new board, Personal Finance PRO. Click here for more details.
John Persinos is the Editorial Director of Invest on a daily basis. Send your questions or comments to [email protected] To subscribe to John’s video channel, click here.