Monday, December 19, 2016

2016: Make Junk Stocks Great Again

The "Trump rally" actually started last January, when cyclicals bottomed...Therefore, Social Mood fabricated this late stage 'reflation' fantasy after-the-fact to rationalize owning junk at the end of the cycle...

The popular narrative, including by me, is that Trump set off a massive rally in cyclical stocks, forcing rotation out of growth and yield. And that of course is still true, especially considering the record asset flows of the past two months. However, in the bigger scheme of things, cyclicals bottomed last January, and have been rallying all year. In other words, this last gasp Trump rally pushed record amounts of money into stocks that have been rallying non-stop for the entire year...

And hence they are all in various states of getting ready to roll over and crash...

Top performers from this past year, in terms of % gain (blue vertical line shows start of this year)...

Western Digital hard drives

Micron semiconductors

Comerica bank 

AK Steel

Newmont Mining (gold mining)

Teck Resources (Mining)

Quanta Services (Oil services)

Clayton Williams Energy (E&P):

Norfolk Southern Railroad