Friday, May 4, 2018

Sell in May and Go Away?

Sara Salinas of CNBC reports, Apple hits all-time high on news of Buffett buying 75 million shares:
Apple hit a new all-time high Friday, briefly surpassing its previous high of $183.50 — pushed up by news that Warren Buffett's Berkshire Hathaway bought 75 million shares in the first quarter.

The stock is now roughly $20 per share short of a $1 trillion market cap.

Buffett is in Omaha, Nebraska, for the annual Berkshire Hathaway shareholders meeting, and he hasn't been shy about his bull case for Apple.

The legendary investor revealed his company's massive stake in Apple and said obsessing over iPhone X sales in the near term "totally misses the point" on the stock. Buffett's comments drove Apple ahead of the rest of the tech sector and overall market.

The Dow dropped 100 points after the open; tech giants Amazon, Alphabet, Netflix and Facebook all started trading in the red — but Apple was nearly 4 percent up at its peak.

"I don't think he's done. I think the numbers of the investment in Apple are going to go higher and maybe even significantly higher," said David Rolfe, CIO of Wedgewood Partners, which counts Berkshire and Apple as its two largest holdings.

Apple currently accounts for about a quarter of Berkshire's portfolio, Rolfe told CNBC's "Squawk on the Street," but he wouldn't be surprised to see that increase to a third or even half of the portfolio.

Apple CEO Tim Cook said the company is "thrilled" to have Buffett and Berkshire as a major investor.

"On a personal level, I've always greatly admired Warren and have always been grateful for his insight and advice," Cook said in a statement.

Buffett told CNBC he'd been buying a lot of stock in the first quarter, but not across the board. He revealed Berkshire had sold completely out of IBM and said he is not looking to buy General Electric.

He also spoke to broader economic growth and commented on a rare activist move to block the board nominations at building materials company USG.
Nothing like having Warren Buffett announce a huge stake in Apple (AAPL) to drive shares to an all-time high. It also helps that the company recently announced a $100 billion stock buyback program, no thanks to the GOP tax cut.

At the time of writing this comment, a bit past midday, Apple shares are up almost 4% helping to drive big gains in the Dow, S&P 500 and Nasdaq (click on image):


A little note on Apple shares. While Uncle Warren was busy buying 75 million shares in Q1, Leo the swing trader was telling people on StockTwits to load up prior to earnings a little over a week ago when shares fell below the 200-day moving average (click on image):


The game is rigged folks, the sharks on Wall Street knew this was coming and they played a lot of retail investors for fools.

Should you follow Buffett and buy Apple shares here? Be my guest but I'm more interested in trading the stock when opportunities arise, buying big dips, especially since you know Buffett will buy more and so will Apple.

What a difference a week makes. Last week, I was tired and cranky, hadn't slept well last Thursday evening, making the big mistake of staying up late to watch an old Arnold Schwarzenegger movie, End of Days. I was talking to you about the end of days for markets and a week later, stocks are soaring on Friday after yet another volatile week (at one point the Dow was down 400+ points on Thursday morning before finishing flat).

Last night, didn't even watch CTV News, passed out around 11 and slept a full eight hours. Sleep, sleep, sleep! The three most important things for your health, even more important than a healthy diet and moderate exercise which are also critically important.

Anyway, it's Friday, the week literally blew by but I want to go over some market thoughts.

The big story this morning was the US jobs report. The unemployment rate is below 4% for the first time since 2000 but payrolls came in less than expected, growing by 164,000 whereas the market was expecting 193,000 in April.

More importantly, wage gains grew by 0.1% over the prior month and 2.6% over the same month last year in April. Economists had forecast a 0.2% and 2.7% increase in monthly and annual wage gains, respectively. Zero Hedge did a decent job going over the US jobs report here.


All I have to say is it wasn't the best jobs report but it wasn't terrible either. There were upward revisions to the prior two months and some people feel that with unemployment below 4%, it's only a matter of time before wage increases take hold.

I remain highly skeptical on wage inflation and think momentum will keep waning. Again, it's critically important to understand employment is a coincident indicator and inflation is a lagging indicator. Leading indicators in the US and around the world have rolled over and are decelerating, and that's what you need to pay attention to.

Now, what will the Fed do given wage inflation seems to have peaked and might roll over? I think it will continue raising rates in June but beyond this, it really all depends on incoming data.

The Fed raising rates in an environment where global PMIs are weakening will add pressure on the yield curve, which is why I keep telling you not to ignore it. If it inverts -- and I believe the risks are high that it will invert -- it will signal a global slowdown ahead.

I've been telling my readers to pay close attention to the US dollar (UUP) as it has been rallying sharply lately and breaking out, suggesting global growth is weakening (click on image):


In fact, have a look at emerging market stocks (EEM) which have been weakening lately (click on image):


It's kind of hard being bullish on commodities and oil given this backdrop which is why I'm very wary when I see oil prices have climbed to the highest since 2014, despite the strengthening dollar:



Some people think there is a new "disconnect" going on where the US dollar will rally along with commodities (DBC). Be very careful, commodities are NOT leading indicators, they typically peak three months after the ISM New Orders index peaks and rolls over.

All this to say, those playing the "sector rotation" into energy (XLE) or metals and mining (XME) thinking this is a sustainable rally really don't have a good macro read on the global economy.

I still maintain there is a second half slowdown ahead and going forward, US long bonds (TLT) will offer the best risk-adjusted returns.

This is why I keep recommending investors to trim risk in their portfolio by investing at least 50% in US long bonds (TLT) and overweighting consumer staples (XLP) and interest-rate sensitive sectors like utilities (XLU), telecoms (IYZ) and REITs (IYR) and underweighting cyclical sectors like energy (XLE), financials (XLF), metals and mining (XME), industrials (XLI) and emerging market shares (EEM).

Now, a note on consumer staples (XLP). Ealier this week, an astute blog reader noted they got whacked hard as the US dollar surged while small caps (IWM) rallied. I wouldn't read too much into this connection (between the US dollar and staples) and would add on weakness just as you should be doing with utilities (XLU), telecoms (IYZ) and REITs (IYR).

A lot of consumer staple stocks, like Kraft Heinz (KHC), another top holding of Berkshire, are way oversold, and part of this is due to the bond teddy bear market I discussed earlier this year (click on image):


I'm not surprised some of these stocks are rallying today and think there is an important reversal which will take shape this summer and going into the fall.

The biggest risk to my macro call? A reemergence of the global synchronized growth story which drives long bond yields north of 4% on the US 10-year Treasury. I definitely wouldn't be betting on this scenario as global growth is definitely slowing considerably.

This, by the way, is the biggest risk to Buffett, Apple, and other large tech companies. Mr. Buffett has very deep pockets and can shrug all this off, I don't and neither do most of you.

Don't get fooled, don't get excited about a nice close for stocks to end the week. After the hoopla with the Oracle of Omaha this weekend, it's back to business and my recommendation is not to sell in May and go away, but choose your stocks and sectors very carefully here and be a lot more defensive.

Those of you who love trading and can stomach huge risk and volatility, here is what's moving up and down on my watch list this Friday (click on images):



You can track some of my ideas real time on Stocktwits but I just don't have time to do it all, trade, read, research, write my blog comments, tweet, share comments on LinkedIn, etc.

Hope you enjoyed this comment. Please remember to support this blog via a PayPal donation on the right-hand side, under my picture. I wish all of you a great weekend and thank those who take the time to donate and/ or subscribe, it's greatly appreciated.

Below, Warren Buffett, Berkshire Hathaway chairman and CEO, talks about Berkshire's annual shareholder meeting, the US economy, business activity, and taking an enormous stake in Apple.

And John Stoltzfus of Oppenheimer and David Kelly of JPMorgan Chase discuss what factors are affecting the stock market.

Lastly, Social Capital CEO Chamath Palihapitiya speaks with CNBC's Kelly Evans at the Sohn Conference about Box (BOX) being his best investment idea for the year, as well as the growth of big data and consumers' privacy rights. Watch his presentation from the Sohn conference, it was excellent (I have no position in Box  but definitely tracking it closely).




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