The stock market is beginning to sense headwinds unrelated to quantitative easing, Byron Wien of Blackstone Advisory Partners says.
Byron Wien Expects ‘Trouble Ahead’
i’m sure you were listening to the conversation. i was. you have seen the volatility sort of amp up in recent days. what do you think? well, i think that the market has come a long way. it was up 16% last year, more than 15% so far this year. we’re only less than six months through the year. i think while valuations are still fair, i think the market has made a lot of progress, and i think there’s some trouble ahead. what’s the trouble? the trouble is that profit margins in my o have peaked, and that earnings are going to be disappointing in the second half. and that’s what the market is beginning to sense. it isn’t so much the fed. the fed may taper, but if they taper from 85 to 60, that’s still an enormous amount of liquidity being poured into the market, and in my opinion three qun quarters of that liquidity goes into financial assets, not the real economy. how do you get the market to believe that? to believe that a taper is not such a bad thing that everybody thinks it may be? well, i don’t know. you know, i have trouble enough analyzing myself much less the market. but i think — the market is looking for certain kinds of reality. tapering is a negative. a disappointment in earning would be a negative. evidence that profit margins have peaked is a negative. and i think there’s some negatives ahead, and i think the market has done very well. do you realize that it’s been up four months without three down days in a row? yeah. i don’t think there have been three down days on the dow this year as a matter of fact. well, maybe not. but you have to go back to 1935 to find another period like that. well, what scares you most besides earnings? what’s the tell on what stocks are doing here? what do you make of the move in rates? how concerned should we be by 20 ten-year? 2.20ten-year is still very low yield. if you look at history, i have studied interest rates back to babylonian times. you look at history, the ten-year usually trades at about the nominal growth rate of the u.s. economy. that’s 2% real, 2% inflation. so the normalized rate for the ten-year should be 4%. so 2.20% is still a long way from 4%. there’s a lot of room for rates to rise and i think maybe we’ve seen the low in rates and one of the reasons the market is a little skittish here, it’s anticipating higher rates.
Profit Margins Have Peaked: Byron Wien
Paul Richards, UBS, discusses how to play the market’s volatility, with the FMHR traders. And, Byron Wien, Blackstone Advisory Partners, reveals where he sees trouble ahead in the markets.
four hours to go until the close. here is what we’re following. let’s get cyclical. for get dividend plays. one of our guests says it’s time to look elsewhere. still got game? it’s been a great year for shares of game stop but what’s the play with the big e3 event. our top story, playing the volatility. stocks up, stocks down, stocks all around today. another volatile session. the dow has had triple digit moves in 7 of the past 11 trading days and judging by today’s action, there looks to be no end in sight. the vix is also making big moves. we’re trading it al stephen weiss how do you play this volatility? this volatility is scary it seems to me just from my experience, and i’m going to do this from my normal state which is without any statistical backup. it seems to me that when you have this many triple digit moves, thi volatility in the markets, that it never ends well. so intermediate term, longer term, still bullish but we’re entering a summer of discontent. at least that will be june, possibly into july, until we get the next fed meeting and that will give us more clarity. you put out a note this morning that said you’re very bullish. why not use these dips because of the volatility to take advantage of that position? well, actually i’m going to accuse the producers of what i accuse a lot of the analysts of doing which is just reading the headline. it said’mlish but not bullish short term. taking off some risk. but i do still believe we’re on the cusp of one of the greatest bull markets ever. it’s just a question of where you pick your entry point. where do you pick that, simon? i think you have to be very much long the market, scott. to what weiss was saying, t summer of discontent, i’m not sure if i agree about that but you have to be concerned with yields up. but i still think the absolute trade, we’ll tal cyclicals, over the staples, is the way we go. we continue to buy the dips. what are you buying? what are you picking at? you continue to buy the names that continue to work. gm. in the housing market, wells far goes. the simpson strong ties of the world. when they’re dipping, buy them. what we’re seeing consistently, when the market recovers, it recovers really, really quickly. that’s where all the hedge funds really — they haven’t been long the market. financials, when you get a dip like you did yesterday, citi, that’s when you have to step up. still good groups. that leads me right to pete. you a buyer of the financials? i’m not. we’ve talked about the volatility indexes. five closes have been above the 200 day moving average and actually two of those have happened already in june. today i think we’ll set up for number three. what are we looking at the market in i think in the past it’s been an opportunity on the dips you want to buy. i don’k that’s the case anymore in the financials. i don’t think that’s the case in the market because of the fact take a look at the eem. yesterday we talked about the enormous put volume that’s been going on over the last month or so. but specifically thursday and friday last week