The market had gone an incredible 70 days without a closing gain or loss of more than 1%. It was one of the longest streaks in history, but it all came crashing down this week as the Dow fell 1.6% and the Nasdaq fell 1.9%. The big question is what happens next. Generally speaking, it does not matter if a long streak of placidity is broken by a positive or negative move—stocks tend to keep doing well either way. Of the 12 times such a streak has happened, in 9 of the them gains were positive over the following year, with an average increase of 9.6% on a total return basis.
FINSUM: This is good historical context, but it is important to remember that none of those occurrences have anything to do with today’s market environment. That said, we remain bullish.
Everyone has heard of the “Dogs of the Dow”, or the strategy of buying the laggards of the Dow. It is has been of the few highly successful value-based strategies over the last decade. If you have liked the Dogs of the Dow approach then check out “Fast Dogs”, which could be a good strategy. The idea is to buy the ten stocks with the fastest dividend growth in the Dow. The strategy has performed well in the last three years and just edged out the S&P 500’s performance (it is hard to track it further because dividend growth rate data is historically spotty). What will likely make this strategy successful is that companies with rising dividend growth are naturally signaling improvement and a brighter future, so an increasingly optimistic outlook is de facto. And of course, investors love dividends.
FINSUM: We like this idea. It would probably work better in rising rate markets, but generally speaking it seems like a smart approach in any environment.
There has been a lot of speculation over the last year that FedEx might be a buyout target. This time last year, everyone thought Amazon would buy the logistics company to beef up its own network. That did not happen. Now the speculation is that it might be on Warren Buffett’s list. Buffett has expressed that he is itching to make an “elephant-sized” acquisition, and FedEx fits the bill in more ways than one. Not only is it huge, but it has a more than $125 bn hoard of cash. Buffett likes simple businesses with good management and large moats, or barriers to entry which prevent competition. FedEx fits the bill perfectly.
FINSUM: This feels like a match made in heaven. Both parties refuse to comment. Hmmmm…
Morgan Stanley has just made two interesting picks in the tech world. While these are not specifically tech companies, these chipmakers are so closely related that it is fair to lump them in. In particular, Morgan Stanley is bullish on rising memory demand in chips and therefore likes two names to do well. The first is Micron (ticker: MU), and the second is Western Digital (WDC), both of which specialize in DRAM and NAND. The former is used in mobile phones and servers, while the latter is used in smartphones and solid state hard drives. According to Morgan Stanley, “channel checks make it clearer that customers are building real conviction that memory will tighten [more demand versus supply] over the course of 2020, which is leading them to put more inventory into place”.
FINSUM: This matches exactly what we see on the consumer demand front, so we do not have any argument with these picks.
The global economy has not been in worse shape from a trade perspective n several years. Despite progress in the trade war between China and the US, global trade continued to drop in the past couple of months and was down over 1% from its 2018 level in November. Perhaps most worryingly, the falls were broad-based, with the Eurozone, the US, Latin America, and emerging Asia all seeing falls in trade.
FINSUM: The big question here is whether this is just policy-related or whether there is a real decline in economic momentum that is not yet showing up in other figures. Time will tell.