It's a rare market where we, literally, write off a huge percentage of stocks that we would normally want to buy. But that's what we are faced with. It pays sometimes to just tick down what can't be bought right here and why and how that can turn because right now there is a shortage of buyable stocks that allow us to take a nap. Sleeping through the night is out of the question given our president and the trade war with the Chinese.
Here's the list of forbidden sectors and what needs to turn around to make them change.
Number one in the forbidden city of stocks is every single financial except fin tech. That's 13% of the S&P that has given you nothing but pain. Why is that? Because the yield curve is almost inverted which makes it so they can't make any money on loans and they can't make it up in net interest margin. I continue to say that this group cannot stay as cheap as it is. I continue to be wrong. I think that only Warren Buffett is allowed to be as wrong as it has been to own these. The portfolio managers have endlessly poured money into the part of finance that has no interest rate risk - think PayPal (PYPL) - and that's all they will buy. I think there is too much value to give up but I accept the sheer hatred toward this group and betting that it will subside has been a sucker's bet.
Number two: Industrials at 9% have become extremely difficult to own because they all get hit the same amount every time there is a tweet about trade or a note about retaliation from the Chinese. Given their nightly retaliation threats most portfolio managers are beginning to hate these stocks. You can own one or two, that's about it.
Number three is retail: You could argue that a full 10% of the S&P is no go because of tariffs and the possibility that margins will be crumped from them. After Walmart (WMT) reports a blow out, the best quarter in nine years and the stock does nothing, the group's become too hard. I like the yields but, again, it doesn't matter. When Home Depot (HD) misses this morning you know there is little hope for the moment. I think the weather is a huge factor but I only think that because I am a gardener.
Health care, 15% of the S&P, is a total loser every time that Bernie Sanders or Elizabeth Warren or any other Democrat except Joe Biden speaks. The single payor mantra has taken over the entire party of candidates except for Biden. As someone who has to interview the CEO of Novartis (NVS) , Vas Narasimhan, all I really care about is trying to game what he thinks about what happens if the Democrats sweep next year. I sure wish I could care about his pipeline but if the "wrong" candidate wins you wipe out 15% of the S&P.
Communications and information technology count for 30%. I like the cloud kings and FANG here but the last few days have seen the total destruction of the (SMH) and it doesn't matter what informed people think. The uninformed, who make broad bets against the segment, are the winners. Their ham-handed ETF short selling has been a colossal success for the moment. I don't see a let up and if I did I might be tempted to keep quiet about it because of the YouTube factor that makes it so you can always be wrong even when you are right. They just need to play the clip, the "they" meaning those who want to embarrass you. Remember, again, only Warren Buffet's allowed a pass. Everyone else is an idiot if they buy something that has anything to do with China.
Energy? Wow, here oil is at $63, the oil companies are all making good money. Many have reported better than expected earnings. It has meant nothing. Transports: have you seen the airlines? They are all making fortunes. No one cares. Housing? On again, off again. Too risky.
Now, we know that if we got any sort of truce in the trade war, with the exception of the financials, these hated sectors would be loved. The idea of writing them all off for longer than a positive tweet - at least positive from the point of view of the companies - could be devastating.
So, you wait. And you lose knowing you will never get back in. Some would say we are back in a bear market. I would say we are in abeyance. Crummy place to be. But a good place with one flick of the pen.