Here’s my final video of the week… and if you’ve found these useful, then perhaps it’s time to check out my recent interview right here. My publisher isn’t promoting it – because everyone thinks the feast will just continue.
Anyway, the stock market right now is near an all-time high.
There are very few bargains in the market – which means there’s only one direction to go.
And even if I’m wrong here and the market goes to 5900, or 6000, or 6100… I don’t think we’re giving up a lot relative to the risk in order to get to those numbers.
I would rather err on the side of selling a little bit too early than to hang on too long.
Check out my video below, or scroll down to read the transcript.
Transcript
Hey, good morning, folks. This is Jeff Clark.
And finally, there’s the utilities.
This one scares me a little bit too short, because utilities are also considered a defensive stock. But really they’ve been going up on the basis of two factors, one that interest rates are going to be falling. So interest rates fall, utilities are big dividend payers.
So they tend to benefit in a declining interest rate environment. And they’re also going up because of high energy usage, due to artificial intelligence demands and crypto mining demand a lot.
So you have utilities, and also the price of natural gas and oil, what they create energy from or electricity from, has been declining. So they’ve had basically the best of all worlds.
Now, what I think is going to happen – and I’ve talked bullishly about natural gas in the past, and I’m talking bullishly about oil today – I think those prices are ready to head back higher, and I don’t know, that might put some pressure on the utility sector. So this is one that I’m looking at as a potential short as well.
What I’m Looking at on the Long Side…
Now let’s look at potential long situations.
Now you have to look at stocks that haven’t done so well, so stocks that are either going to play catch up. If I’m wrong on this entire market thesis of things becoming a little bit difficult for the stock market in the months ahead, and the market just keeps powering higher.
That’s certainly possible. I don’t think I’m wrong, but if I am, what has to happen is a lot of the lagging sectors have to play catch up, and the energy market is one of those.
So you can look at XLV. This is the Energy Select Sector Fund.
Obviously, it hasn’t performed very well since April. It peaked in April, and we’re trading about 15% below its peak, and it’s just barely up on the year.
I like a lot of the stocks in this particular sector. So there’s Exxon, there’s Chevron, there’s ConocoPhillips, there’s Schlumberger, all of those stocks, Occidental Petroleum, Warren Buffett’s favorite oil stock trading at new 52-week lows.
So I think there’s a bounce coming in this sector, and I think even if the market doesn’t continue higher, this is where the money starts to flow into because money is going to pull out of the hot names, and it’s going to go looking for bargains, and there’s relatively few bargains in the market.
The energy sector happens to be one of those.
And in that vein, also here’s the oil services sector.
So these are the Halliburtons, right? These are the ones who help the drillers, and you can see that this has just been abysmal all year. It’s negative on the year. It’s down significantly from where it peaked in April, down significantly from where it was in late July.
So I think there’s some bargain hunting that can go on here.
The final sector that I’d like to talk about is China.
My Love-Hate Relationship With Chinese Stocks
I have a love-hate relationship with China because I’ve made recommendations in China before that have done really, really well, and then some that have done really, really poorly.
So I don’t know. I think I’m batting maybe 600 as opposed to 700 or 800, which I would be much more comfortable with.
But in any case, the Shanghai Stock Exchange is neara 52-week low. It’s trading relative to the S&P at probably the cheapest it’s been in over 20 years.
If money starts to flow outof the U.S. stocks, maybe it finds a home in Shanghai. I think that’s certainly possible.
The problem with the Chinese stocks, as I mentioned in my latest recommendation in the Delta Report last Friday, (paid up subscribers can catch up right here) is that you can’t always trust the numbers.
The Chinese market is wildly manipulated. There’s obviously some political tension between the West and the East.
So there’s any number of reasons. But I think that’s why Chinese stocks are so cheap. If you look at them relative to the U.S. counterparts, you know, you’re valuing Alibaba against Amazon, or you’re valuing JD.com against Amazon.
JD and Baba are much, much cheaper than Amazon is, so I think there’s some value there. But I could have said the same about Russian stocks before they invaded Ukraine, and then we weren’t able to trade Russian stocks anymore.
So I’ll just throw that out there; you make your own decisions on that sort of thing. So in any case, what I want to get to, and I just want to leave you with this.
The Valuation Insanity…
The stock market right now is near an all-time high.I think 5650, 5630. 5670 is the all-time high. 5800 would bemy absolute high target for any rally this week that is caused by the Fed lowering interest rates.
Keep in mind at that level, even at this level, 5600, the S&P 500 is trading 22 times next year’s earnings estimates. That is insane in terms of valuation. That is a very high valuation.
Think about it this way. If you were to buy a hot dog stand, right? There’s a hot dog stand on the corner in New York. Best place ever to have a hot dog stand, doing great business.
You’re going to give up 22 years’ worth of earnings to buy that hot dog stand. That’s what you’re willing to pay.
So that means you work for free, basically for 22 years before it starts to pay you off.
That seems insane in my book. It makes no sense to me, especially with interest rates up here around 5%. So I think the valuations are very high. I think the market is ready to come on down a little bit. We’re probably due for a little bit of a sledgehammer across the head type of moment.
And I think we’re headed in that direction. So I don’t mind, even if I’m wrong here and the market goes to 5900, or 6000, or 6100. I don’t think we’re giving up a lot relative to the risk that I see in the market in order to get to those numbers.
That price-to-earnings ratio needs to expand, and we’ve got to be looking at truly stocks trading at the highest prices ever, and that just seems really hard for me to wrap my head around that happening.
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What I Suggest You Do…
So I’m conservative. I’m bearish.
I would rather err on the side of selling a little bit too early than to hang on too long, and then wind up having to sell along with everybody else because when everybody else is rushing for the exits, it’s hard to get out; it’s much easier to get out when everybody else is looking to buy.
And you can sell into that. You might leave a little bit on the table, but I think it’s important for investors to consider getting some liquidity right now because I do think we will have lower prices in the weeks and months ahead, and I look forward to being able to buy at those lower levels. And if you don’t have cash you can’t buy.
So I would encourage folks to consider, especially if they’re very heavily into the market right now, and levered, perhaps take some of that leverage off the table.
Trim some positions, take some profits, move some cash to the sidelines, and wait to buy.
Take care, bye, bye,
Jeff Clark
Editor, Market Minute