Market Insights & Analysis from Kramer Capital Research

What JPMorgan, Morgan Stanley and All Bear Banks Got Wrong

Here we are with a handful of trading days left in 2019 and it’s obvious by now that nearly all the high-powered strategists on Wall Street missed the boat on one of the biggest rallies in recent memory.

According to JPMorgan, the S&P 500 is poised to fall at least 3 percent by the end of the year, which is why the bank started urging clients to move to the sidelines back in July. At the time, the argument revolved around the rally being too good to be sustainable.

In other words, the strategists couldn’t believe their eyes that cash kept flowing through the summer. But that cash flowed all the same.

Investors who took their advice seriously fled to defensive sectors and locked in a return of about 1-3 percent for the foreseeable future. In the process, they cheated themselves out of what’s now a 15 percent continuation rally over the past five months.

That’s the challenge when it comes to telling people that the market has hit a wall it can’t climb. Sooner or later, you’ll be right… but in the meantime, everyone else keeps making money.

This year a lot of big banks played it too safe. JPMorgan was one of the least pessimistic. Morgan Stanley has been calling for a 10-15 percent correction for months now.

UBS sees the S&P 500 down 18 percent by the end of the year. Unless that kind of lightning flashes in an otherwise clear sky, the bank’s credibility is going to be the only thing on Wall Street taking the hit.

In the meantime, the only market crash that people avoided so far this year was hypothetical. The rest of us were out here in the real world, open to the upside of a market on the move.

I’ve seen it again and again in my career. People who focus on the downside almost always get the timing wrong. They’re usually months too early. Sometimes the red flags go up years or even a decade before the market finally peaks.

Doctor Doom Almost Always Loses

A lot of people on Wall Street try to earn the epithet of “Doctor Doom.” They come and go. Most of them end up forgotten.

After all, the market spends the overwhelming majority of its time in bull market mode. Stocks normally go up. It takes an external shock to shake that natural confidence, which is why we say that no bull market ever died of old age.

I got in a famous fight with one of the Doctor Doom types, Peter Schiff, five years ago. (Watch the video.) He argued that stocks and the global economy had hit their limit. I simply accepted the evidence of my eyes: the rally isn’t over until it’s over.

Let’s see how well we did. Someone who took Schiff’s advice and sold all stocks would have earned 13 percent in gold. That’s not a great return, but they were safe.

The S&P 500 soared 150 percent over that period. While it was anything but a smooth ride, history shows that people who exited in 2014 left a stunning amount of money on the table.

The odds are simply stacked against apocalypse. When the market crumples, we’ll know why. Usually there’s a recession, policy misstep or other economic disruption.

Otherwise, there are weak and strong seasons. In terms of earnings, we’re suffering through a weak phase now, just like we saw in 2015-16 and innumerable other periods in the distant past.

But if a weak phase can feed what’s now a 26 percent year-to-date (YTD) return for stocks, I definitely do not want to be left on the sidelines when the bulls really get the room they need to run.

And there’s always a strong stock to buy even when the market as a whole stalls. That’s why I make sure people always have access to both GameChangers for a strong offense and Value Authority on defense.

High Octane Trader squeezes money out of the market when stocks are going sideways. One way or another, it’s important to keep the money moving.

After all, we can always make more money as long as we’re alive. We’ll never be able to recover time we lost because someone wanted to scare us.

CANNABIS CORNER: IT ONLY TAKES A RUMOR

When the link between fundamentals and valuations stretches too far, the only rules stocks obey derive from sentiment and statistics. That’s where the big cannabis cultivators are now.

I track the six largest stocks in the group. They’re up a collective 10 percent this week on what amounts to a rumor that Congress is finally ready to start talking about rolling back regulations nationwide.

That would be a huge development for these largely Canadian companies. However, it’s still almost entirely hypothetical. Any bill would need to work through the House and then get taken up in the Senate before reaching the White House.

The process could easily take months. By that point, we’re already looking toward the 2020 election cycle and all controversial legislation will pause while lawmakers fight out their differences at the ballot box.

These companies are still another year away from good news. Nothing changes in the meantime. The Canadian market remains its own animal and U.S. sales are allowed on a state-by-state basis.

So, what drove these stocks up 10 percent this week? Sentiment and statistics. The mood around Big Cannabis has gotten extremely ugly since the summer, with the stocks I track down a collective 60 percent.

That’s a shocking amount of downside for stocks to permanently absorb. The selling is usually exaggerated. When the pendulum swings back from the extreme, there’s almost always a bounce.

These stocks are getting that bounce now. Whether it evolves into a full-fledged rally remains to be seen, but at this stage the core principles of market physics are in control.

A stock in motion will remain in motion until the mood changes. Talk of nationwide deregulation changed the mood or at least shook investors out of what’s now habitual gloom.

People are looking at stocks like Aurora Cannabis Inc. (NYSE:ACB) and Canopy Growth Corp. (NYSE:CGC) again. There’s more upside potential here than there was a week ago.

I’m telling my Turbo Trader subscribers to ride the wave on select names. There’s no reason to ignore a rally like this when cash is flowing.

We didn’t buy these stocks when they were flying high. As a result, we don’t need them to recapture their lifetime peaks to make money.

All we need is for market physics to keep the stocks moving a few percentage points farther than the S&P 500. That’s how swing traders beat the market, even when the stocks themselves are moving on nothing but rumor and momentum.

Join me for the Orlando MoneyShow, February 6-8, 2020, at the Omni Orlando Resort at ChampionsGate. I will be speaking Friday, Feb. 7, 3:00 p.m. about The Stealth Value Investor: Ten Amazing Dividend Yield Plays Flying Under the Radar. On Saturday, Feb. 8, I will talk at 5:15 a.m. about Identifying the Real Future GameChanger Stocks: Ten Companies Positioned to Double – Even if the Bears Take Over Wall Street. Other investment experts who will be speaking include retirement and estate planning specialist Bob Carlson, income and options guru Bryan Perry and world-traveling, free-market economist Mark Skousen, who leads the Forecasts & Strategies newsletter. Register by clicking here or call 1-800-970-4355 and mention my priority code of 049252.

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