These are just a few of the bold and actionable answers I’ve offered over the last few days, as colleagues and subscribers have asked what the market’s going to do next.
“I have no idea.”
“I wish I knew.”
“Could be up, could be down.”
Yeah, I know. Not helpful. At all. Unless maybe you think you’re always supposed to know what happens next, whether you should be buying or selling. If that’s the case — if you think you should know what’s coming down the pike — rest easy, my friend. Fortune doesn’t always favor the bold. There are times when the bold get cut down in their prime simply for being bold and stepping into the fray too soon…
This may be one of those times. I mean, every rally over the last month has been a bad time to get bold. Why should this one be any different?
Q: Why should we think our man in the White House is suddenly going to tweet rainbow emojis about trade with China?
A: We shouldn’t.
And that’s my point here. We have no way to know what Trump will say next about trade. Or anything else. But we do know the stock market is now reacting to what he says. And that’s maybe all we need to know.
Why now? See my answers above. I have no idea. I wish I knew. He’s tweeted about nuclear war with North Korea, and the market totally ignored it. In fact, it rallied. Stock prices went up when the president threatened to drop nuclear bombs. Then $50 billion in tariffs knocks the market down a few trillion?
Maybe that whole preemptive nuclear strike thing was just too absurd to be believed. Maybe I just don’t have a very good sense of humor…
But I know when I don’t know something. And right now, I don’t know what this market is going to do next.
Now, I’m not supposed to tell you that I don’t know. As a fairly successful investment guru, I’m supposed to have all the answers.
I should be able to talk for at least 20 minutes on topics like What Will the Fed Do Next? What’s the Best Dividend Stock to Buy Right Now? What’s the Best Marijuana Stock to Own? Is it Time to Short Tesla? What About Netflix?
And in fact, I can do that no problem (OK, condensed version: one more hike; UNIT; can’t tell you; yes; no).
But I will admit when I am beaten. Trump has beaten me. His twisted logic and freewheeling policy has my brain in a hammerlock. I can’t make sense of it, so I’m tapping out.
If I could go back in time seven days, what would I tell week-ago me? Because last week, I thought I knew…
My articles have to be submitted the day prior to publication. So what you’re reading now was actually written yesterday (and I wrote that today, which is also now yesterday… got it?).
So last Tuesday, I was writing that tariffs were a negotiating ploy, stocks were gonna rally, and I really liked Micron Technology (NASDAQ: MU). When that article was hitting your inbox last Wednesday, I was a genius. Stocks were up huge, China sounded like it was ready to talk, and Micron rallied like 5% to $53 a share.
Thursday saw one analyst downgrade Micron to “sell” with a $35 target (while at least two others still say it’s going to $100). The Dow sold off 700 points on Friday. And then Trump announced an additional $100 billion in tariffs over the weekend. Are you kidding me? Sigh…
Honestly, I’m not complaining. I signed up for this, and I really do love every minute of it, right or wrong. And I wouldn’t tell last-week me to change anything I wrote, *ahem*, last week. You take your shots, and you live with the results. And so you know, I still think Micron has some solid upside. The analyst who downgraded it did so on expectations that DRAM (dynamic random access memory, and yes, I know that without looking it up) capacity was about to expand and drive prices lower.
In this regard, chips are a lot like commodities. Demand pushes prices up. New production enters the market to take advantage of high prices. And production eventually overwhelms supply, prices fall, that new production ends, and the whole cycle happens again. Right now, both Samsung and SK Hynix are adding DRAM capacity that could affect markets in 2019. That is, if demand stays the same…
As it happens, cell phone demand is expected to be flat for the remainder of this year, largely because the iPhone X isn’t the breakthrough it was touted to be. I expect weak cell phone demand growth one year probably sets up for a stronger year the following. There will be a new iPhone. The X will be cheaper. And we’re gonna start getting 5G wireless fairly soon…
Numbers to Watch
So, I think there are plenty of catalysts for Micron. But I will tell you this: Don’t look at that P/E ratio and think, “Holy crap, 5?!? This is an amazing bargain.” Low P/E ratios for Micron happen later in the cycle, not earlier.
The very best time to buy Micron is when the P/E is really high. Back in the summer of 2016, the P/E ratio was 40–50, and the stock bottomed out around $11.
Clearly, analysts have a very hard time getting estimates right for Micron.
So, stocks rallied pretty nicely yesterday. Back to pretty much where they were this time last week, when I was still a genius. The S&P 500 is still tracking along its long-term trend line — the 200-day moving average. And earnings still start in earnest with banks on Friday.
Bank of America reports on Monday, and I’m going to go ahead and say it: I like Bank of America a lot. So bring on the downgrades!