When we last left off in the perpetual saga of the U.S. equity markets, a clear statement of the fact that investors had become overly fearful led us to conclude that "this remains a market to take advantage of rather than run from." This was the final sentence of a note titled Buying Equities Here Involves A Simple Yes or No Answer To A Simple Question.
The direct and blatant truth of the matter is that investors are being led down an overly-pessimistic path of the global recessionary boogie man that every investor, analyst and trader is now clinging onto in an act of despair. It's almost as if the constant barrage of misinformation has caused investors to tap out from pure mental exhaustion of the repetitive recession sirens blaring for the entirety of 2019.
If one didn't know any better, judging purely from the headlines of 2019 exclusively, you would think that the S&P is negative on the year. Instead, we are up about 15% in the face of an overwhelming penchant for negative sentiment towards equities throughout this year.
Following this risk reset in the markets, investors are being given yet another opportunity that a majority will miss to accumulate equities at advantageous prices. The risk on trade is set to come alive in a big way as we enter Q4, fed by a near historic misallocation away from equities into any instrument that absolves asset managers of taking responsibility for putting on risk. In other words, professional investors are way too afraid of losing money and they have become stupid in their decisions as a result.
The markets punish stupidity without fail. They especially punish stupidity when it plays into a narrative of misallocation that can then allow the markets to do what they do best: create a counter-intuitive, momentum driven march forward that mentally runs counter to even the most outlandish scenario a majority of investors were expecting.
As a result, investors want risk on, correlated assets here. There is a time to run from equities that correlate to the markets and then there is a time to embrace them. This is a time when investors should be giving them a bear hug with everything they have.
The biggest and brightest mega-cap tech names...buy them.
The leading real estate and construction related names....buy them.
Semiconductors: NVDA, AMD, AMAT...have to own them.
What investors don't want to own is anything remotely associated with risk off.
With this said, ETF Pro subscribers were told to liquidate their GDX position that has been held since Q2 and SLV for gains of 40% and 14%, respectively. In fact, we are flipping the position in GDX, initiating a short position there for a short to intermediate-term hold based on risk on coming back into vogue in a very steady and powerful manner as Q3 turns to Q4. There are other factors, such as sentiment and technicals that create an opportunity on the short side of gold here, as well.
We are at a juncture in the markets where very simple decisions with respect to allocation will make or break 2019 performance wise.
Turn off the noise. Invest smartly.
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