Stocktake: Trump cites Syrian immigrants as market threat

Saying people should empty retirement accounts because "tremendous numbers of people from Syria" are coming into the United States is a novel argument, but Donald Trump fancies himself as a skilled market-timer. "I did invest and I got out, and it was actually very good timing," he said last week.

Trump has been warning of a bubble since last October and stocks are currently at all-time highs, so it’s hard to see how his timing was so good.

Modesty is, of course, not Trump’s strong point. “Forty of the 45 stocks I bought rose substantially in a short period of time,” he boasted last year. If so, Bloomberg noted last week, he would have outperformed 97 per cent of comparable investors in the first quarter of 2015 and all of them in the second and third quarters.

Doubtless, expert investors everywhere are terrified that this investing genius envisages a market apocalypse, but all hope is not lost – if Trump wins in November, the market will “go great”.

Tech giants deliver for investors

The recent post-earnings surge in Facebook shares saw it briefly become the fifth-most-valuable company in the US. For the first time, the five biggest companies – Apple, Alphabet, Microsoft, Amazon and Facebook – were all technology companies.

Value investors might be wary of such a portfolio. While Apple and Microsoft boast relatively modest valuations and Alphabet’s is far from stratospheric, Amazon and Facebook have long looked pricey.

Nevertheless, this is no 1990s-style technology takeover. At the height of the dotcom bubble, the technology sector accounted for 35 per cent of the S&P 500, compared with just 6 per cent in 1990 and 13 per cent in 1998. Today, it is again easily the S&P 500’s biggest sector, but its sector weighting – 20.7 per cent – has risen only slightly since the current bull market began in 2009.

Furthermore, the sector has earned its pre-eminent position, having been the big winner in earnings season.

Back in April 2014, I wrote a piece headlined “Widespread fears of a new tech bubble are overblown”. Talk of 2016 being 1999 redux is as daft now as it was then.

Expensive lesson awaits on leveraged oil bets

Bloomberg analysis of brokerage data shows young investors like to bet on risky, volatile stocks, with Netflix, Amazon, Twitter, GoPro and Tesla all among the most-traded stocks.

Having a flutter is all very well, but millennials with an appetite for leveraged oil bets will likely learn an expensive lesson. The fifth-most-traded security is an exchange-traded note providing triple the exposure to oil futures.

Triple-leveraged funds aim to provide three times a security’s daily return, a fact often missed by novice traders intending to hold them for longer periods. Although oil has gained this year, the aforementioned ETN has halved; over 12 months, it is down 90 per cent. Ironically, triple-leveraged funds betting on oil declines are also down by more than 40 per cent in 2016.

Doubtless, some traders will nip in and out and make a few quid, but most will lose their shirt. As financial blogger Ben Carlson noted, trading such vehicles “is like driving a truck full of nitroglycerine through a match factory”.

History suggests further gains for stocks

Market technicals continue to suggest stocks are likely to enjoy above-average returns over the next year.

The recent sleepiness – the S&P 500 exhibited a 10-day trading range of 0.92 per cent in late July, the tightest trading range in two decades – augurs well for stocks, judging by Nautilus Research data. Looking at the 30 narrowest two-week trading ranges over the last three decades, it found stocks were higher a year later on 27 occasions.

Similar analysis from Ned Davis Research came to the same conclusion – dull markets are associated with better-than-average gains over the following six- and 12-month periods.

Nor should investors be fearful that stocks, which have risen in each of the last five months, have run too far too fast. Since 1950, notes LPL Financial, the S&P 500 has risen for five consecutive months on 23 occasions; a year later, stocks were higher every time.

European companies beat earnings estimates

Recent European equity sentiment has been lousy but is earnings pessimism overdone?

A Barclays note last week suggested as much, noting the median company is comfortably beating estimates and by more than the amount seen over the previous three quarters. Nevertheless, analysts are slow to upgrade estimates and valuations “are not far away from the 2012 lows”.

Two caveats. Firstly, cost-cutting rather than strong sales growth appears to be driving earnings. Secondly, analysts are taking a wait-and-see approach regarding potential post-Brexit deterioration.

If a 2012-style earnings recession isn’t forthcoming, says Barclays, European stocks have room to move higher.