Topley’s Top Ten – February 17, 2020

Author

Matt Topley
February 17, 2020

1.High P/E Stocks Outperformance Vs. Low P/E Stocks Surpasses Internet Bubble.Wisdom Tree

But eventhe best performing value factor was no contest for a market that has avoidedvalue stocks like the Bubonic plague. Figure 2 is my favorite chart right now.

If theBear Lurks, High P/E Stocks Are the Dreaded “Phone Ringers”JeffWeniger, CFA

Figure 2:10-Year Rolling Annualized Outperformance, Low P/E vs. High P/E Stocks

Face it:The amount by which high P/E stocks have outperformed low P/E stocks in thelast 10 years exceeds the amount observed at the apex of the dot-com bubble.

2.Ratio Large Cap Growth vs. Large Cap Value 

3.Car sales in China fell to fresh lows in January as thecoronavirus kept buyers away from showrooms, intensifying the gloom hangingover the industry 

Dave Lutz at Jones Trading

– Retail car sales fell 22% to 1.71million units, the biggest-ever drop for the month of January, the ChinaPassenger Car Association said Thursday. The group predicted a worseningoutlook, saying February sales may drop more than 30%.

From Dave Lutz at Jones Trading

4.Americans Use 50% More Natural Gas Than 10 Years Ago But Stocks Make New Lows

Stocks Make New Lows….FCG-Natural Gas Stock ETF…Previous High $56..$9 last

5.Transportation/Warehouse Job Growth vs. Retail

6.Earnings Update

Earnings season for Q4 2019 results is well underway,with 64% of the companies in the S&P 500 Index SPX having reported as of Friday, February 7th.So far, 71% of the companies included in the large cap domestic equity indexthat have reported posted surprise earnings per share (EPS) beats, while 67% ofthe companies reporting have posted positive revenue surprise beats. Currently,the blended earnings growth rate for the S&P 500 is 0.7%, which, ifsustained, will mark the first time the index has reported year-over-yeargrowth in earnings since Q4 of 2018. Additionally, the S&P 500’sforward 12-month price/earnings (P/E) ratio is 18.8, well above the 5-yearaverage reading of 16.7 and the 10-year average figure of 15.0(source: FactSet Earnings Insight).

7.Most ESG Funds Dominated by Tech

WSJ- By Akane Otani

The five mostcommonly held S&P 500 stocks in actively managed sustainable equity fundslast fall were Microsoft Corp., MSFT 0.89% Alphabet Inc., GOOG 0.40% Visa Inc., V 1.39% Apple Inc. and Cisco Systems Inc., CSCO -0.74% according to an RBCCapital Markets analysis.

Big Technology Stocks Dominate ESG Funds

The most commonly held S&P 500 stocks inactively managed sustainable equity funds last fall were giants includingMicrosoft, Alphabet and Apple

8.Japanes Companies Hoarding Cash…Now Embracing Stock Buybacks.

9.White House considering tax incentive for more Americans to buy stocks, sources say

Published Fri, Feb 14 20202:33 PM ESTUpdated Fri, Feb 1420203:17 PM EST

Key Points

  • The White House is considering ways to incentivize U.S.households to invest in the stock market.

  • Under the proposal, a portion of income would becometax-free for investment purposes.

  • The Trump administration is considering several proposals aspart of a forthcoming economic stimulus package.

WASHINGTON — As part of aforthcoming package of proposed tax cuts, the White House is considering waysto incentivize U.S. households to invest in the stock market, according to foursenior administration officials familiar with the discussions.

The proposal, one of many new tax cuts under consideration, wouldsee a portion of household income treated as tax-free for the purposes ofinvesting outside a traditional 401(k). Under one hypothetical scenariodescribed by multiple officials, a household earning up to $200,000 couldinvest $10,000 of that income on a tax-free basis, although officials notedthese numbers are fluid.

“Nothing’s ruled out,” said one senior administration official.“Nothing’s been ruled in, either.”

Larry Kudlow, director of the National Economic Council, told CNBCthe approach looked at most closely centers on creating universal savingsaccounts, which would combine retirement, education and health care savingsinto one vehicle.

Money put into the account would be done so on an after-tax basis,and taxed when withdrawn as well; but any accumulation of profits during theinvestment timeframe, known as capital gains, would not be taxed. Kudlow toldCNBC this policy, if pursued, may extend to bonds as well as stocks.

Kudlow noted that this and other ideas have yet to be fleshed out,and no decisions have been made.

The development comes as President Donald Trump seeks reelectionthis fall. He has sought to distinguish himself from his potential Democraticrivals by accusing of them of pursuing “socialist” policies while he has toutedtax cuts and deregulation under his administration.

After the Great Recession, the percentage of American householdsowning stocks fell to 52% from 62% before the crisis, according to Gallup.That percentage reached 55% in 2019, a year when the stock market hit recordhighs.

The tax break, if enacted, would represent “a pretty substantialamount of money for people” to have for retirement, according to Stephen Moore,economist at the conservative Heritage Foundation and close confidante of theWhite House.

“That’s the type of thing that would expand ownership,” Mooretells CNBC.

The stock market’s rise under Trump’s tenure is a well-documentedpoint of pride for the president and his top economic officials, who havecalled the Dow Jones Industrial Average a “barometer” and a “mark-to-marketindicator” of the administration’s performance. The S&P 500, seen as thebroadest index of corporate performance, has risen 49% since Trump took office.

The White House publicly has been pointing to the package as a newshot of adrenaline in an economy whose growth shows signs of slowing 10 yearsinto an expansion. A payroll tax cut would become an option only if the economyexperienced significant decline, according to two senior administrationofficials. Separately, Kudlow has suggested cutting the tax rate to 15% formiddle-class earners.

Kudlow and Vice President Mike Pence have suggested that thepackage could be unveiled in early fall, as voters are deliberating whether toelect Trump to a second term.

New tax cuts are “one of the reasons why we’re going to focus somuch energy on making sure that not only do we get President Donald Trump fourmore years in this White House,” Pence said in a recent interview on the FoxBusiness Network. “But we’re going to make sure that we reelect a RepublicanSenate and elect a Republican House of Representatives.”

Any tax cuts would need congressional approval to take effect, atall order while Democrats have the majority in the House of Representatives.For that reason, officials described the proposal that would be made public as“conceptual in nature.”

“It’s sort of an idealistic document,” said a senior officialinvolved in discussions. “Sort of, ‘If you reelect this administration, this iswhat you’re going to get.’”

10.Things You Need to Succeed