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February 23, 2018

These Stocks Still Look Good Even with the ‘End Game’ Coming

Alaric Securities

The short week and the Winter Olympics are winding down, but is it also the home stretch for the bull market?

Wall Street veteran Ed Yardeni says it’s not curtains yet for stocks, as he cites a bunch of encouraging indicators.

“I believe that the latest selloff marked the fourth correction in this bull market, not the beginning of a bear market,” the Yardeni Research president writes. “The economic fundamentals remain bullish.”

Saxo Bank’s Peter Garnry offers a more bearish take on stocks and the economy, though he’s not totally throwing in the towel as he delivers our call of the day.

“We are finally seeing clear signs that we are moving into what we call a classic late-stage economic cycle,” Garnry says in a webcast titled “Entering the End Game.”

Such stages are generally marked by an acceleration in economic growth, some kind of uptick in inflation, and a last leg-up for prices for various asset classes, the Danish investment bank’s head of equity strategy says. Then the expansion typically runs out of steam, and then we move into recession.

Saxo’s strategists remain moderately positive on equities for 2018 and see them ending higher on the year. But they have ideas on what to avoid as well as what looks good.


                                  Saxo Bank

The stock sectors they still like include chip companies, U.S. financials XLF, biotech IBB, (thanks to the M&A potential) and miners XME, (due to demand for electric-vehicle battery components).

Semiconductor makers SMH, are benefiting from strong sales to companies working on self-driving cars and other products using artificial intelligence. They’re also doing bumper business from the rise in cryptocurrency mining, according to Garnry. “All of these big trends are driving demand and strong pricing,” he says.

Automakers CARZ, have underperformed in the past couple of years, and they’re likely to keep lagging as the economy’s in late cycle, the strategist adds.

Key market gauges

Futures for the Dow YMH8, S&P 500 ESH8, and Nasdaq-100 NQH8, +0.14% are moderately higher. The Dow DJIA, and S&P SPX, remain on track for a weekly drop, while the Nasdaq Composite COMP could end up with a flattish week.

Europe SXXP, is mixed, after Asia closed higher. Oil CLJ8 and gold GCG8, are losing a little ground, as the dollar index DXY gains. Bitcoin BTCUSD has been changing hands around the $10K mark.

The chart

“We are now firmly in a higher volatility regime.”

Many influential folks have been saying the market had been quiet — too quiet — for oh so long, and now those days are definitely behind us.

What gives?

“Rising interest rates, bro!” said DoubleLine’s Jeff Gundlach in a tweet late yesterday, as he noted the VIX VIX can’t get close to lows hit when a “nutty ‘melt up’ narrative” was dominating.

“We are now firmly in a higher volatility regime,” is how the Abnormal Returns blog puts it, while linking out to an Irrelevant Investor post on how the calm has been shattered.

The buzz

Bloomberg News

Treasury boss Steven Mnuchin is making waves again.

Don’t worry about rising wages leading to higher inflation, says Treasury Secretary Steven Mnuchin.

Mnuchin is drawing flak for his remarks, with “Yeah, sure” coming from DoubleLine’s Gundlach.

Missouri’s governor was indicted Thursday for invasion of privacy stemming from a 2015 extramarital affair.

HP Inc. HPQ and Hewlett Packard Enterprises HPE look set for gains after their earnings late yesterday.

General Mills GIS plans to buy Blue Buffalo Pet Products BUFF  in an $8 billion deal, but Xcerra XCRA — which provides testing technology for electronics — says it won’t be taken over by Chinese buyers after a U.S. government OK looked too hard to get.

Warren Buffett may use his annual letter to Berkshire Hathaway BRK.A, shareholders, due on Saturday, to sound upbeat about America.

A bunch of Federal Reserve officials are lined up to speak. The New York Fed’s William Dudley and the Boston Fed’s Eric Rosengren on tap in the morning, Cleveland’s Loretta Mester and Kansas City’s Esther George up to bat around lunchtime, and San Francisco’s John Williams stepping up just before the closing bell.

Plus, the Fed is scheduled to release a monetary policy report this morning.

Article and media originally published by Victor Reklaitis at