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Stocks Won’t Test the Correction Lows

This is a bold prediction. But I make it with about 70% certainty (thus a less than 1-in-3 chance we do touch the correction lows). And it’s based on a sober analysis of the fundamentals.

First, let’s look at the economy. Wednesday’s second read on Q4 GDP was revised down a tenth 2.5%. But the largest positive contribution to the real GDP growth rate in Q4 was once again personal consumption. From Bloomberg…

Consumer spending is unchanged at a very strong 3.8 percent as downward revisions to spending on durables (down 4 tenths to a 13.8 percent rate) and nondurables (down 9 tenths to 4.3 percent) are offset by an upward revision to the largest category of service spending (up 3 tenths at 2.1 percent).

Tuesday’s Consumer Confidence index jumping to 130, the highest level since November 2000, certainly bolster the case for a healthy economic base.

And these comments from Brian Wesbury, Chief Economist at First Trust, highlight the momentum we can expect this year…

The bottom line is that today’s report should not change anyone’s impression about the economy. We expect real GDP to grow at a 3%+ rate in 2018, which would be the first year that’s happened since 2005. In particular, the tax cuts enacted in late December and the deregulation coming from Washington, DC are going to help spur faster growth. Meanwhile, today’s report reminds us that the Federal Reserve is behind the curve.

That last sentence from Wesbury is a fact that still seems to have large investors worried, especially after new Fed chair Jerome Powell revealed his hawkish talons on Tuesday.

And it’s what could send a wave of “rate fears” back into stocks, compelling some analysts to bet we’ll re-test the lows.

But market players are over-estimating Powell’s hawkishness when he was really just enthusiastic about the economy. And they are underestimating the twin forces of fundamental strength: the economy and earnings.

Here’s what I wrote for members of my TAZR Trader service on Tuesday evening that includes the second component of fundamentals, earnings growth, arguing for new stock market highs in the first half of the year…

The S&P Will Not Go Below 2400 or 2500 or…

As the new Fed chair stretched his hawkish wings, market players took some profits out of the terrific post-correction rally we’ve had.
Not surprising and actually welcome if the rally is to persist.
Now we get to listen to market technicians who will come out of the woodwork and say “We’ve got a lower high in the indexes and it’s all down hill from here!”
Ah, they wish it was that simple.
Am I absolutely certain that S&P 2700 will find strong buyers again?
No more than I could guarantee 2740-60 would hold.
But I lean 2-to-1 in favor of 2700 holding right now.
And should a worse “rate scare” take over market sentiment, I still don’t think we’ll see the correction lows touched, much less breached.
But let’s go worst-case scenario for a moment… what if fear picks up again?
I go on record right now with this claim: The S&P will not go below 2400 in the first half.
Why? Because large investors who use quantitative models are starting to discount $160 in EPS in the next year and at 2400 that’s a 15X market multiple.
They will be buyers before then. And it doesn’t hurt that 2394 is the 61.8% retracement of the move from the 2016 breakout above 2100 to 2873.
In reality though, most fund managers will be buyers around 16X, or S&P 2560.

(end of TAZR 2/27 commentary)

For me and my followers, this fundamental and technical outlook means continuing to hold and accumulate fundamentally strong Zacks #1 Rank stocks like MasTec (MTZ Free Report) , Lam Research (LRCX Free Report) , and NVIDIA (NVDA Free Report) .

And it also means holding on to Tech/Value winners like Apple (AAPL Free Report) as it makes new all-time highs today above $180, and sticking with “expensive” growth disruptors like Square (SQ Free Report) after another solid quarter reinforces their momentum in a new type of FinTech ecosystem.

Over a dozen investment bank analysts raised their price target on Square shares today as they look favorably on the company’s continued 30%+ revenue growth, investment in new services like lending, and an “omnichannel” subscription model focused on international growth and “enabling sellers to engage with buyers wherever they are.”

Square’s subscription and services based revenues of $79 million in Q4 were up 96% year-over-year, accelerating from 84% growth in Q3, and ahead of the Street consensus of $71 million, with primary revenue contributors being instant deposit, Caviar, and Capital.

Last month, Nomura took the most optimistic outlook when they compared Square’s financial disruption to Amazon a decade ago and raised their price target on shares to $64.

Today, Mizuho analysts coined a new “sexy sports car” comparison by calling Square an “Innovation Machine” and the “Tesla of Payments.” They hiked their price target (PT) to $50 and these were other notable PT boosts…

PT Raised to $50 at Wedbush
PT Raised to $55 at Needham & Company, noting strong growth and margin expansion
PT Raised to $53 at Susquehanna
PT Raised to $48 at Goldman Sachs, noting ‘Revenue Growth & Investments Continues to Accelerate’
PT Raised to $50 at Guggenheim
PT Raised to $51 at Cantor Fitzgerald
PT Raised to $51 at Barclays

Meanwhile, Jefferies analysts maintained their $53 PT and Buy rating as they like the fact that subscription-based services continued to perform well.

Again, Square isn’t cheap trading at 100 times EPS and 10 times sales ($14.5 billion market cap / $1.33 billion projected 2018 revenues). But that’s why you buy the dips under $40 when you get them and make sure you are investing in the long-term growth story, whether you liken it to Amazon or Tesla.

I consider Square either an expensive disruptor with a big first-mover growth advantage, or an M&A target for the likes of FinTech giants Visa and PayPal. Either way, it’s one to own and accumulate.

Disclosure: I own shares of AAPL, SQ, LRCX, MTZ and NVDA 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.

New SJP CEO unveils group plans after record year

St. James’s Place new chief executive Andrew Croft has said he is confident the wealth management network will achieve 15%-20% annual growth in gross inflows over the medium-term, as it reports record inflows for 2017.

Wellian’s Philbin: The future of asset management

When you are thinking about the future of this wonderful industry of ours and having the ability (albeit in article form) to consider the future of it, the initial thoughts are “I’ll create a wish list”.

Revealed: Advisers’ favourite business development managers 2017/18

Advisers’ business development manager (BDM) preferences have been revealed for a third year, following publication of the 2017/18 study on the area by financial services recruiter BWD.

Bull Train Has Left the Station

Last week, many market players were still quoting that tired, useless, fence-sitting aphorism “we’re not out of the woods yet.”

Here’s what I wrote in Best Charts of the Bounce

When market players were unsettled and pretty emotional during the “flash correction” of early February, many sold stocks and waited for signs of the all-clear.

Unfortunately, Mr. Market doesn’t give you a lot of time to analyze all the news and data points, make up your mind, and get over your fear.

By the time the worst news is priced-in, he’s already made some serious capitulation lows and is riding the value train to price-in rising earnings estimates in a strong economy.

After describing to my followers why the hidden “W” bottom may have already occurred — and how it justified the visible “V” bottom that was in progress — I focused on our purchases of Technology and Consumer stocks during the “flash correction” that were leading the charge higher: Alibaba (BABA), NVIDIA (NVDA), Lam Research (LRCX), and Square (SQ).

And by the end of last week, the Nasdaq 100 (NDX) had not only cleared most resistance levels, it had actually exceeded the Feb 2 highs, essentially reversing the correction. Here’s today’s NDX chart clearly headed for new highs soon…

The S&P index is following the Nasdaq strength with today’s closure of the big Feb 2 gap down. This week, we should see the benchmark back above 2800 once the Powell Fed anxiety has disappeared.

What Else Looks Good?

Thankfully, we also held on to our Apple (AAPL) shares during all that “peak iPhone” pessimism and its rally back toward all-time highs is impressive, but not surprising. It’s also certainly fueling the NDX.

Plus, during the tumult, we ramped up our exposure at the correction lows with the 3X leveraged ProShares UltraPro Nasdaq 100 (TQQQ).

And, one of our sleeper holdings is a little semiconductor maker called SMART Global Holdings (SGH). I call it the “lil Micron” because it makes memory and flash components and trades at a similar valuation on some metrics like P/E and PEG.

SMART trades at under 7 times this fiscal year’s (ending in August) $5.00 EPS consensus.

But with only a $635 million market cap and an estimated $1.13 billion in sales this year, SGH trades at a price-to-sales multiple of just 0.56.

The behemoth of memory, Micron, trades at 1.77 times sales.

And while the David and Goliath of memory share a PEG (PE ratio vs. Growth rate) of 0.46, Micron’s growth is expected to fall to flat next fiscal year (also beginning September) on both the top and bottom lines.

Meanwhile, SMART Global is expected to maintain mid-teens percentage growth for sales and profits. In my book, SGH could be the perfect add-on for a larger semi player.

Be sure to swing by TAZR Trader to find the best stocks with the best chart setups as the market swings to new highs.

Disclosure: I own shares of BABA, LRCX, NVDA, AAPL, SQ, SGH and TQQQ 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.

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Recession is Coming! Not

The big headline this week for market players was from the chief of the biggest hedge fund in the world, Ray Dalio of Bridgewater, which has AUM (assets under management) north of $150 billion. From Reuters…

Head of world’s largest hedge fund says U.S. in a ‘pre-bubble phase’ with a 70% chance of recession

“I think we are in a pre-bubble stage that could go into a bubble stage,” the hedge-fund manager said during a Harvard Kennedy School’s Institute of Politics on Wednesday.

Okay, that sounds pretty good for stock investors who know how to play the game. As I’ve said for years, we ain’t near “euphoria” nor “irrational exuberance” yet, so buying the dip in strong growth companies is still the game plan.

But then he throws in the “70% chance of recession” analysis in the same breath?

What Dalio actually said was that he is estimating the probability of a recession by the 2020 presidential election at 70%.

He is also quoted as saying recently “the risks of a recession in the next 18-24 months are rising.”

Okay, that also makes more sense. A lot can happen in 2 years. Inflation could spike, sending interest rates higher and inverting the yield curve, one of the classic harbingers of economic recession.

Any reasonable economist or investment asset manager could be modeling a 50% probability of recession in the next 18 months as a “look-out” for unknown unknowns, i.e., “black swans.”

Feeling Stupid, or Savvy?

But Dalio is also the same guy who last month told global investors at Davos that “if you’re holding cash, you’re going to feel pretty stupid” as the stock market was due to rocket to fresh heights.

The next week, the “flash correction” began. I decided I would feel stupid if I didn’t have cash for that dip. So we sold some stuff near the highs and bought the lows aggressively. That story here with lots of stock charts.

So what do we do with these big warnings from a hugely successful asset manager?

I believe you need to stay focused on the fundamentals which argue for continued fund flows into equities over the next 18 months.

On October 9, I wrote a special report for Zacks Confidential titled The Monetary Myth of Gold. Here was a good summary of my “better than gold” investment thesis…

If you follow my portfolios, media appearances, or other investment commentary, you know the primary macro themes that have made me stay aggressively long growth and technology stocks this year.
In case you’ve lost track, I will list a few of them that are extremely relevant…
1) Global economic momentum, however slow & steady it appears
2) Interest rates on our side, as investors in any asset class
3) Technological innovation unleashed in so many industries that the exponential results are staggering
4) Consumer/worker adaptations to rapid change and innovation are astoundingly positive for corps
5) While automation threatens the need for that dastardly concept of Universal Basic Income, tech/science entrepreneurs across the planet continue to create and build wealth for more people around the globe

(end of Zacks Confidential excerpt)

In that report, after giving a detailed explanation — including inflation, interest rate, and US dollar dynamics — of why gold was not a favorable choice for our investment capital, I picked 3 growth stocks for Zacks members from Retail, Technology, and Healthcare that I believed would outperform gold over the next 12-18 months.

They were Alibaba (BABA Free Report) , NVIDIA (NVDA Free Report) , and Edwards Lifesciences (EW Free Report) . Let’s see how they have done…

After making new all-time highs above $200, Alibaba has fallen back in line with gold and the S&P 500.

Meanwhile NVDA and EW are stealing the show, as strong growth franchises like to do.

And I’m sticking with all 3 names this year. But I have a boatload more ideas that I either own or I’m tracking every week.

For instance, if you believe that this Technology Super Cycle has more room to run, then you’d be a buyer of Lam Research (LRCX).

And if you like picking Biotech ponies, you might have joined me in our recent 155% gain in Sangamo Therapeutics (SGMO Free Report) . Meanwhile we still own bluebird bio (BLUE Free Report) from $95 and a handful of other promising Healthcare Innovators.

Bottom line: Let’s say Dalio is only half right about all his bold predictions. That means we can bank on stocks continuing to “bubble up” over the next year and we need only keep a vigilant eye on the inflation/rates picture and economic data for early signs of trouble (of which I see few now).

With this strategy, I don’t plan on feeling stupid any time this year.

Disclosure: I own shares of BABA, NVDA, and LRCX for the Zacks TAZR Trader portfolio. I own shares of EW and BLUE for the Zacks Healthcare Innovators portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and Healthcare Innovators services. Click Follow Author above to receive his latest stock research and macro analysis.

Airlines for America boss: EU unity on Brexit could change nearer deadline

The EU’s current unity in Brexit negotiations is likely to split the nearer it comes to deal-making time.


“In the EU, a lot of airports can’t handle the 140 flights [per day]. They’re too full… and the slots aren’t there.”

That was the view of Airlines for America president and chief executive Nicholas Calio, speaking at the AOA conference. He said one of the EU’s great strengths has been the fact that the other 27 members have spoken as one in dealing with the UK.

However, he believes that as the Brexit deadline approaches, countries will break ranks as they increasingly realise the deal being struck might not be best for them.

He said one example of this would be Spain, where any threat to UK aviation would be hugely unwelcome as the country receives 12 million British visitors each year.

Calio said: “One of the advantages the EU has is the EU 27 have remained remarkably unified. I think that will look different the closer you get to the break.”

He added that some EU countries are already believed to be secretly trying to use Brexit to further their own interests and attempt to replace the UK as Europe’s biggest US market.

Calio said: “The problem is now US carriers have a huge investment in infrastructure in the UK and we’ll fly where demand dictates, and much of that demand is in the UK.

“In the EU, a lot of airports can’t handle the 140 flights [per day, which the UK does]. They’re too full… and the slots aren’t there.”

Fishburners CEO Murray Hurps has quit


Murray Hurps

Startup community facilitator Fishburners has appointed Annie Parker as interim chief executive to replace Murray Hurps, who will vacate the role on Monday.

Just one week ago, Fishburners celebrated the end of a three-year search for a new home in Sydney, securing space at the downtown Sydney Startup Hub as an anchor tenant.

“Having grown the Fishburners community to 845 startups and secured our new hubs in Brisbane, Shanghai and Sydney, I am confident I have left Fishburners in a position to remain the leading community for scalable tech startups in the region,” said Hurps.

On social media, Hurps noted he came into the position in 2014 originally as “interim CEO”, and made the decision to step down after signing the landmark Sydney Startup Hub deal.

“In this moment, I feel like the future of Fishburners is secure, my role of ‘interim CEO’ is complete, and I’ve decided to move on,” he wrote.

“We’ve grown the Fishburners team from one incredible person [Pandora Shelley] to 13 incredible people, and I’ve had the honour of working with the best chair any CEO could hope for, Katherine Woodthorpe.”

Ironically, Muru-D co-founder Parker was, until May, leading the Lighthouse accelerator, which was set to take up three floors to anchor a massive new Barangaroo startup hub. That site was later ditched after it was overshadowed by the NSW government’s $35 million investment into the Sydney Startup Hub, due to open in November.

“I look forward to continuing the great work that has already been undertaken and maximising the opportunity provided by the new premises in the Sydney Startup Hub,” Parker said of her new role at Fishburners.

“Fishburners has nurtured some amazing startups in the last few years and the ongoing interest from new startups in being part of the program it runs speaks to the successes it has created.”

The 17,000 square metre York St facility, across the street from busy Wynyard railway station, will double the size of the co-working office Fishburners currently runs in Ultimo, allowing it to host 610 desks.

“We anticipate we’ll be very likely full, or very close to full, almost immediately upon the Sydney Startup Hub opening,” said Parker.

“The new space in the Hub allows us to not only focus on early stage startups, but gives a home to them as grow and mature without losing the DNA that the Fishburners’ community provides.”

Hurps, who is also the co-founder of startup community survey Startup Muster and the entrepreneur behind several software and hardware startups, said he enjoyed his time leading Fishburners because of his love for the startup community, care for the future of Australia and the professional growth opportunities.

“I’m [now] looking for positions that could be similarly rewarding, and would welcome any referrals… I will also be putting more time into the Startup Muster 2017 survey.”

Fishburners, established in 2011, was one of the first co-working space providers for Australian startups, operating 390 desks currently in Sydney, Brisbane and Shanghai. Parker is a director at Code Club Australia and founded Telstra’s Muru-D accelerator in 2013.

Steph Curry did it. How do you lose money in the Bay Area real-estate market?

The answer: Buy high, and buy in a less-than-prime location

Golden State Warriors star Steph Curry is seemingly incapable of losing.

Off the court, not so much.

Somehow, Curry and his wife Ayesha have reportedly managed to lose money in the one of the hottest real-estate markets on the planet right now. While scores of Bay Area home sellers are getting multiple all-cash offers over their asking price, the Currys have learned that scoring big-time with real estate isn’t always a slam dunk. After paying $3.2 million for their 7,520-square-foot Walnut Creek mansion in late 2015, and putting in nearly a half-million dollars to fix it up, the couple has sold the place for $3.195 million after dropping the price last month from $3.395 million. And that price had been dropped from the $3.7 million they were asking back in October of last year. The more recent sale went pending July 5.


The answer to how to lose money on Bay Area real estate seems to be a combination of buying high, and ignoring the first three commandments of home purchasing: location, location, location.

“Since homes valued at more than $2 million make up only a small percentage of properties in Contra Costa County, it’s a very niche market,” says Steve Mohseni, a real-estate agent with RE/MAX in Pleasanton. “So there’s limited demand for this type of home.”

Mohseni checked sales in the past year of homes listed in the city of Walnut Creek for $2 million or more, the definition of high end. He found that out of the 494 homes sold, only eight were in that category. Of those eight, four sold under the asking price, three sold at asking and one sold for $30,000 above the listed price. And, says Mohseni, “none of those were over $3 million, until now. So Steph had the most expensive house sold in the city.”

Anything can happen, of course. A recent survey by the real-estate powerhouse Pacific Union showed that in some parts of the region the high-end market is doing gangbusters. The report shows that home sales activity in the Bay Area increased by 3 percent year over year in June and 2 percent for the first half of 2017, with Alameda and San Francisco counties posting the largest pickups in the first half of 2017, thanks to more sales of higher-priced homes. In June, said the survey, 40 percent more homes priced between $2 million and $3 million sold in the Bay Area year over year. And sales of homes priced higher than $3 million were particularly hot in Santa Clara County last month, with transactions jumping 50 percent from last June.

Unfortunately for the Currys, the Santa Clara market is about 50 miles south of their home on Sugarloaf Court. And as Mohseni reminds us, real estate is all about location. The Curry home sits on a nondescript cul-de-sac south of downtown Walnut Creek, just a few blocks off an Interstate 680 exit and with its backyard sloping down to a major thoroughfare.

“The place is kind of remote and there’s no prestige, no view of the Golden Gate Bridge,” he says. Combine that lack of pizzazz with the home’s placement on the lonely nose-bleed section of real estate and you’ve got, well, you’ve got out less money than you put into it.

“It’s the mainstream that’s hot, not necessarily the high end,” says Mohseni. “And in many areas even the high end is not as hot compared to four years ago when we saw a lot of Chinese buyers paying all cash and over the asking price. That, as a rule, has slowed down.”

Commercial real estate could be in better shape than expected

Are commercial real estate people feeling edgier about the office leasing market than they say?

A few weeks ago, we wrote that several high-profile dealmakers were uneasy about future Manhattan space absorption despite today’s current strong market.

They asked not to be named for reasons that will be clear in a moment. So we kept their comments anonymous.

One big-league broker cited a “lack of depth” to the market beyond a handful of major negotiations going on.

A different broker pointed out that most large-scale transactions that — it is hoped — will be completed in the next 12 months will actually add to availability, because companies will leave behind more space than they’re moving into.

The modest qualms shared privately with us by certain major players apparently got under some skins, even though the column was far from doom and gloom.

Data we cited reflected a still-healthy leasing scene despite a first-quarter availability uptick to 11.7 percent from 10.6 percent in the same quarter of 2016, according to CBRE.

We also noted many ongoing negotiations for huge blocks of space. A few hadn’t even been previously reported, including a possible 600,000-square-foot blockbuster for Pfizer at Brookfield’s Manhattan West and 200,000 feet for Shiseido Cosmetics at L&L’s 390 Madison Ave.

However, our moles said that some landlords were worried about a lower but crucial market rung — deals of 100,000 square feet and under.

That prompted this retort in a July 5 mid-year market outlook report from Colliers International:

“Despite recent consternation among some real estate commentators [italics ours] that the market is weakening,” Colliers said, “especially for lower-profile deals less than 100,000 square feet,” leases from 25,000 to 99,999 square feet totaled 5.29 million square feet in the first half, “on par with 5.31 million in the first half of 2016 and ahead of 4.85 million feet in the same period two years ago.”

Colliers also noted strength in the investment-sale market, where the average office building price was up 7.5 percent over the same time last year.

Another report from Newmark Knight Frank noted strong activity in the under-100,000-square-foot field, which accounted for 60 percent of all the leases signed in the first half of 2017.

Both reports were politely called to our attention by no less than developer Bill Rudin, CEO of Rudin Management Co. and the incoming chairman of the Real Estate Board of New York. He cited strong recent leasing energy at his own properties as well as at those of others.

But to be clear, folks: The source who warned of “not that many deals as landlords would like” below 100,000 square feet was talking not about the past, but about the future — a story yet to be told.