How the Russell Could Crash in 2017

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Hey everybody Dave Bartosiak with Trending Stocks at Zacks.com. Apparently you folks are a little too swept up in the holiday spirit. I like a good Christmas story as much as anybody out there but the Miracle on Pennsylvania Avenue hasn’t even filmed a trailer yet. King Donald hasn’t had his official coronation and everyone is running around buying up small caps like his Keynesian infrastructure deficit spending worked perfectly.
I’m not out here saying that this relationship isn’t going to work but the market just met Donald Trump on Tinder a month ago. It’s too soon to start picking out bride’s maid dresses. The Russell has gone from 1,150 to nearly 1,400 in fewer than 22 trading days.
Why? Well, financials make up nearly a quarter of the R2K and the banks have been hot. Regional bank ETFs like KRE and the smaller community bank index fundQABA are up more than 25% since the election. That’s 25% on an ETF that typically only moves 78 cents for every dollar the market moves. It’s supposed to be less volatile with that lower beta.
Which brings us to today’s phrase that pays, “Beta.” Beta represents volatility relative to the S&P 500. Stocks with high beta are supposed to offer greater potential reward to go along with greater potential risk. Low beta stocks are supposed to offer safety during down turns in the broad market.
Look, there’s always a bearish scenario. The bearish scenario here is Trump doesn’t get the spending bills he needs for his infrastructure projects, or that he does and inflation takes off, prompting a tougher response from the Fed. He’s already thrown shade at Fed Chair Janet Yellen. She may be small in stature but that women can be terrifying. You do not want to get on her bad side. And don’t forget the Notorious BIG, the Notorious RBG, and Janet Yellen, all from Brooklyn. If there’s one thing President Carter knows, it’s don’t fight the Fed.
So let’s stop buying up every stock in the universe in the hopes that it’s all perfect. Sears (SHLD) isn’t going to magically turn everything around. Fred’s (FRED) can’t right the ship overnight.
Again, I want to stress that I’m not pessimistic on the market nor the Donald. I’m rooting for the Russell 2000 to be over 1,600 in 2017. I’m just saying you need to game out the possibility that everything doesn’t go perfectly according to plan because it never does. If it doesn’t, I see a scenario where the Russell retests the Brexit lows near 1,100 in short order. This could be a buy the election, sell the inauguration type trade. In the wise words of RZA, “Protect ya neck.”
Every time you share this video, Janet Yellen gets a tear drop tattoo. Chime in the below, let me know your 2017 target for the Russell 2000. Subscribe to the YouTube channel, Twitter @bartosiastics, and come back here for all the Trending Stocks with Zacks.com, I’m Dave Bartosiak.

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