Image Source: TradingView.com
This article was sent to members via email December 20. You can access that email via the link that follows this article.
By Brian Nelson, CFA
Hi everyone,
It’s time to start thinking about portfolio protection.
It looks like the S&P 500 broke below technical levels, and I would not be surprised to see heightened volatility heading into the close of this year into next. This December has been one of the worst months in history, but I feel like 2019 may become one of our worst years in history. That doesn’t mean you should panic, but you should reset your expectations lower. This market is looking treacherous.
Just when it looked like Facebook (FB) was getting back on track, the company gets pummeled on old news. I really can’t believe it. The market loves to hate Facebook, but this weakness won’t last forever. Yesterday, the attorney general of the District of Columbia filed suit against the company regarding the Cambridge Analytica scandal, and the media outlets, which compete against Facebook for advertising dollars, are running with every bit of bad press they can find. Bashing Facebook unfortunately is not going to win them more business. I’m completely baffled by Facebook’s pricing action, and I still think this one will again return to new highs.
In mid-2018, I wrote up my thoughts on Johnson & Johnson’s (JNJ) talc liability, and it does pose uncertainty to our estimate of its fair value range, given just how large some of the rulings have been against the company. This week, Reuters ran a hit piece on the company, again repeating old news, and shares got walloped. Predicting the outcome of any contingent legal liabilities is always challenging, near impossible, but we’re talking about J&J here, not some global criminal organization. Sensationalism and bombastic articles are hurting some of our favorite ideas, and the market backdrop is only adding to the pain it has been inflicting.
Let’s keep paying attention folks. It looks like the Fed is going to make it a point to look as independent as possible when it comes to its relationship with Donald Trump, and if we know the Donald, he doesn’t like losing. We might see him become more proactive in trying to influence Fed policy, and this might only make the markets more jittery. We’re not looking to add any put options to the simulated newsletter portfolios just yet, but we could be in for a big move lower in the coming weeks and months, and it might happen all at once. As technical levels are breached, more and more capital may be “freed” up, and this may only contribute to heightened levels of volatility.
As I close with this morning’s briefing, I again want to reiterate how important it is for you to look forward. Stock returns are caused by changes in forward-looking expectations, not backward-looking data. When evaluating stock returns, realized actual ambiguous data may be best left out of the conversation. I talk a lot about what you should be paying attention to in my upcoming book, but if all you’re looking at is historical data, you’re going to miss the future, which is what matters. It’s quite simple: If your investment strategy is based solely on backward-looking data, it’s likely going to fail, and if it succeeds, it’s almost entirely luck.
Stay sharp out there, and don’t fall into the complacency trap. Keep paying attention.
Link to original email: http://campaign.r20.constantcontact.com/render?m=1110817109903&ca=e2406cd6-c113-4344-8731-493f33fc44a4
—–
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.
Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.