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Thankful Investors Start Holiday Week on Positive Note

Wall Street looked over the investment landscape and decided to express gratitude.

The holiday-shortened week got off to a positive start on Monday. The Dow Jones Industrial Average, S&P 500 and Nasdaq all closed higher. Traders focused on robust corporate earnings and economic indicators. Merger rumors also buoyed sentiment.

The Conference Board reported Monday that its leading economic index (LEI) surged 1.2% in October. The LEI jump followed smaller increases of 0.1% in September and 0.4% in August.

The technology sector led the way Monday. Indeed, tech stocks are the superstars of 2017. Year to date, the major tech benchmarks have beaten the market.

The iShares U.S. Technology ETF (IYW), the Vanguard Information Technology ETF (VGT), and the Technology Select Sector SPDR ETF (XLK) have generated YTD total returns of 35.36%, 35.47% and 31.67%, respectively. The S&P 500 YTD has generated a total return of 16.68%.

The three major indices ended in positive territory Monday. But headwinds persist.

Bearish inventory reports weigh on the energy patch. On Monday, West Texas Intermediate fell 33 cents to close at $56.38 per barrel. Brent North Sea crude fell 55 cents to close at $62.17/bbl. Energy stocks fell in tandem with oil prices.

Then there’s Washington.

The Tax Cuts and Jobs Act is 400-plus pages of details passed by the House without a single hearing. The Senate passed its own version of tax reform. Consensus remains elusive.

As lawmakers grapple with the first major overhaul of the tax code since 1986, what dominates the headlines? Sex scandals.

Don’t expect the purveyors of infotainment to provide the news that you need to make wise investment choices.

Beware the portfolio killers…

Despite Monday’s gains, a correction lurks around the corner. As the bull market enters its ninth year, a downturn would be healthy.

But during corrections, I’m always amazed by the hysteria of the “pundits” in the media. Their confused explanations are usually accompanied by lousy advice.

The predictions of these talking heads are wrong far more than they are right.

Corrections generate the same kind of frenzy as a “Black Friday” sale…except in reverse. If you’re looking for a contrarian indicator, it’s hard to beat the mainstream press. Notable examples:

February 1996. BusinessWeek magazine featured this cover: The Fall of an American Icon. The story was an obituary for Apple (NSDQ: AAPL). BusinessWeek asserted that Apple was doomed.

Today, Apple is the world’s biggest company by valuation. The Cupertino colossus sports a market cap of $872.7 billion.

On April 10, 2013, we added Apple to the Growth Portfolio of our flagship publication Personal Finance. Since then, AAPL has generated a total return of more than 200%.

March 2008. During the financial crisis, Bear Stearns was circling down the drain. But many pundits insisted that the investment bank was just fine. One celebrity on CNBC said it would be “silly” for investors to take out their money. Bear Stearns collapsed.

October 2016. The conventional wisdom was that the markets would crash if Donald Trump won in November. The influential website Politico exemplified the prevailing groupthink with this headline a week before the election: Economists: A Trump win would tank the markets. We got the “Trump rally” instead.

There are countless other examples of misguided punditry. It gets worse during the holidays, when the hucksters grow loudest.

Tune out the media circus — it’s designed to boost ratings, not your net worth. When the correction finally hits, don’t dump quality stocks out of fear. Corrections aren’t disasters; they’re buying opportunities. Conversely, runaway bullishness is a danger sign.

Here’s a classic red flag: During the last five trading days, volume in put options has lagged volume in call options by more than 41% as investors make bullish bets. This is one of the lowest levels of put buying during the last two years. It reflects extreme greed.

Investing Daily shuns the mindless herd. We spot wrong-headed thinking and bet against it. Let’s do the numbers.

Monday Market Wrap

  • DJIA: +0.31% or +72.09 points to close at 23,430.33
  • S&P 500: +0.13% or +3.29 points to close at 2,582.14
  • Nasdaq: +0.12% or +7.92 points to close at 6,790.71

Monday’s Big Gainers

  • Cavium (NSDQ: CAVM) +10.80%

Chipmaker agrees to acquisition bid by Marvell Technology (NSDQ: MRVL)

  • Delphi Automotive (NYSE: DLPH) +3.47%

Auto parts maker soars on merger talk.

  • Analog Devices (NSDQ: ADI) +2.93%

Analysts boost price targets for chipmaker after 3Q beat.

Monday’s Big Losers

  • Incyte (NSDQ: INCY) -6.18%

Analysts turn bearish as drug maker lacks growth catalyst.

  • Cardinal Health (NYSE: CAH) -4.38%

Generic prices eat into drug distributor’s margins.

  • Devon Energy (NYSE: DVN) -3.27%

Energy producer falls with oil and gas prices.

Letters to the Editor

“Everyone talks about a likely correction, but what about a recession? Could we get one soon?” — Deborah S.

Deb, here’s a lump of coal for your holiday stocking: Economists now put nearly 50-50 odds on a recession over the next four years.

The Bankrate Economic Indicator, a survey of top economists, puts the likelihood of a recession during Donald Trump’s first term at 47%.

Major reasons: consumer spending runs out of steam, government debt rises, the trade balance worsens, and job growth slows. The recovery that started under Obama is in its ninth year; recoveries historically only last about eight years.

My job is to help you make money. Got a question? Reach me at: mailbag@investingdaily.com

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.

Quote of the Day

“What use could this company make of an electrical toy?” 

— William Orton, president, Western Union Telegraph Company, 1876

Mr. Orton made this assessment after being offered the chance to buy the patent for the telephone. When it emerged in the late 1800s, the telephone was the Internet of its era. The lesson: it pays to think outside the norm.

 

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