October 11, 2018

US Equities Market Alert 2018 10 11: One more BTD in a year of buying opportunities


BTD = Buy The Dip. Yes, yet again we are being given the gift of a US Equities market entry point.

Patience is a profitable virtue when deploying capital into any market sell-off. This pullback in US equities is no reason to panic.

We track several hundred fundamental macroeconomic factors, many of which are proprietary from our equity and credit research of more than 7,000 firms globally. We group and categorize these into our Market Phase Cycle(TM) framework.

Right now, not one category of fundamental macro factors gives us pause.

Real corporate earnings (based on apples-to-apples UAFRS accounting standards) remain very robust across Corporate America. The trend in fundamentals also remains strong and suggests higher corporate profitability on the way.

Management confidence is measurable and also a leading signal. Management teams remain confident about their commitment to invest in growth. Corporate investment and earnings growth still have strong legs.

Also, contrary to multiple as-reported valuation methods, valuations are not high, in fact they’re rather cheap considering market and macro fundamentals. Again, this requires UAFRS financial numbers…don’t trust the financial media focus on a “too high P/E” as they are using as-reported numbers which are horribly distorted.

Virtually every major equity market collapse in the USA in the last 150 years has been preceded by a massive credit crisis. Check out your history: 1907, 1929, 1938, 1970s, 2000, 2008… we could go on. Today, we see no credit crisis, as everything looks solid from the SLOOS to CDS markets to UAFRS-based corporate credit ratings. Of note, too-high interest rates do cause problems for economies. Rising interest rates in and of themselves do not. Rates are still very very low.

So, no real threat of a credit crisis for the next several quarters if not a few years. Therefore, no equity market collapse.

While it is difficult to feel comfortable staying long in equities during fast downward market moves, this is par for the course in this stage of a bull market. More volatile, but more volatile up.

US equities are setting up for another buy the dip opportunity. If you are long, stay that way and ride it right back up again. If you’re too heavy in cash — and we know a lot of you are — then this would be a great time to begin dollar-cost averaging back in. Enjoy the ride.

— Joel Litman – Chief Investment Strategist

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