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My Biotech Watch List

June 19, 2018, 11:16 am

It’s been a good year for growth stocks, with the Russell 3000 Growth index up over 8%. In addition, the best-performing names have been the most aggressive. This is a bit surprising given the rise in interest rates, which theoretically should not be in favor of growth stocks. However, the mantra of this bull market has been that as long as earnings are rising, stocks will be okay. Given this, investors are comfortable paying significant premiums for highly visible growth.

Biotech, on the other hand, has underperformed meaningfully so far this year, with the iShares Nasdaq Biotechnology ETF (IBB) up less than 1%. This makes sense since the top 10 components of the IBB, which make up 52% of the ETF, are mostly large companies that have maturing products or are facing competition or patent expirations. Due to patents, the life cycle of a new drug is only about 12 years, forcing the companies to replace and surpass these products if they want to grow. This becomes increasingly hard as they get bigger, which is why many of the giants of IBB have such low PEs as there is the risk of a meaningful decline in earnings down the road. For example, Biogen (BIIB, 8% of the index) has a PE of 11.5X 2019 EPS estimates, Amgen (AMGN, 8%) has a PE of 13, Gilead Pharmaceuticals (GILD, 7%) has a PE of 11 and Celgene (CELG, 7%) has a PE of 8.

So while IBB has underperformed most growth stocks, it’s a little unfair to call it a growth index as its performance is in line with many value benchmarks. To be clear, though, I am not saying that biotech is dead or that there are no game-changing opportunities here. Instead, you need to look at the smaller companies that are in developmental stages with little to no sales or earnings. There is certainly no shortage of these types of companies. In fact, of the 147 biotech companies with capitalizations of at least $500 million, only 29 earn money. There is tremendous potential in these smaller biotechs, but there’s also considerable risk as a high percentage of these companies will not be strong long-term performers. However, the ones that can successfully develop the right products will have a bright future.

With that in mind, I want to share three of the developmental stage names that are on my watch list right now.

LOXO Oncology (LOXO) wowed investors for the second straight year earlier this month at the important American Society of Clinical Oncology (ASCO) meeting. The company is potentially revolutionizing treatments for certain cancers by focusing on their genetic mutations instead of where they exist in the bodies. In 2017, it presented data on its lead drug, larotrectinib, which had a 76% response rate in patients whose tumors had specific genetic markets. This year, LOXO-292, a drug earlier in the pipeline, showed a 77% response rate in treating solid tumors with RET (the gene that produces a protein for signaling between cells) and a 45% response rate in mutated thyroid cancers. Both of these drugs are still in Phase I and II trials, so it will be a few years before they are approved and the company realizes revenues. The stock has been a strong performer but has corrected a little off its recent high of $208.95, and any period of potential broader market weakness could be a good opening.

Xencor (XNCR) is a developmental stage company that makes monoclonal antibodies for the treatment of autoimmune diseases. Its lead drug candidate is XmAB5871. It’s currently in Phase II testing for IgG4-related diseases, which is a chronic inflammatory condition characterized by tissue infiltration with lymphocytes. In November 2017, all 12 patients in the Phase II study achieved their primary endpoints of a two-point reduction in the IgG4 responder index, with eight achieving remission. The company’s pipeline goes well beyond IgG4, as it has an oncology program that focuses on activating T-cells to kill malignant cells. XNCR partners with larger companies, including Alexion Pharmaceuticals (ALXN), whose ALXN 1210 drug candidate makes use of its technology. The broad pipeline of Xencor makes it more attractive, and I would consider adding it on a pullback.

Atara Biotherapeutics (ATRA) is developing T-cell immunotherapy treatments for patients with cancer and autoimmune and viral diseases. The company is in its pivotal Phase III trials of tab-cell in patients with Epstein-Barr virus, which causes mononucleosis (also known as the “kissing disease”). Management is optimistic about approval and hopes to file a New Drug Application (NDA) with the European Union (EU) in the first half of next year. ATRA is also working with the Sloan Kettering Cancer Center to develop the next era of genetically modified T-cells. The stock has dipped after running up sharply in May in anticipation of the ASCO meeting, so a buying opportunity may not be far away.

To drive superior returns, investors need to turn more to developmental stage companies with greater risks. Some of these companies have already had nice runs in the “risk-on” environment for growth, but by practicing patience and waiting for the best entry points in strong stocks, there is good money to be made in this sector.

Looking for Opportunity

June 12, 2018, 10:09 am

Last Monday, the NASDAQ matched its all-time closing high and signaled that the negativity around Big Tech over the last few months has pretty much evaporated. It’s clear that the sector has been a favorite throughout Wall Street.

However, the broader market remains 2% from record territory, and when you factor out tech, the S&P 500 is actually still down year to date, with most sectors from industrials to financials also lower. From utilities to the consumer, wide swathes of Wall Street are still a long way from recovering from the February correction.

The good news is that leadership is tentatively broadening out to other corners of the market like the banks and even real estate, opening up new opportunities. I expect to start buying more once we get a little more confirmation that money is indeed flowing beyond Big Tech.

We’re in the early stages of that now, but many charts still look rich even though the best earnings season since 2010 opened up a lot of upside for stocks to chase – even stocks already at record prices. A full 38% of stocks are back within 10% of their 52-week highs, and I would be reluctant to trade those names until we see proof that they can push through those known limits and make us real money.

I’m keeping an eye on a few things this week. In terms of the market, the S&P 500 is not far from 2,800 again, which is where it topped out in mid-March and hasn’t been back to since. A break above could be significant.

In addition, there are a few events on the calendar that are big enough to move stocks, so we’ll have to stay on our toes. The first is President Trump’s meeting with North Korean President Kim Jong Un, which took place overnight in Singapore. The market opened higher after the two signed an agreement that highlighted the denuclearization of the Korean peninsula, and I’ll be watching the action throughout the day to see if anything else major is announced.

In addition, the Federal Reserve Open Market Committee holds its fourth meeting of the year and the third under new Chair Jerome Powell. We’ll get the Fed’s latest decision on interest rates, and the market is pricing in a 95% chance of another increase. There has also been more talk in recent days that the unwinding of the Fed’s balance sheet could be coming to an end, and Powell will hold a press conference to hopefully discuss that afterward. Stocks could move on any or all of those factors.

I will be watching all of it closely, and while we haven’t gotten as many favorable set-ups as we would like in the last week or so, I’m watching several stocks that are trading constructively and could soon give us attractive entries.

In the end, I continue to expect this to be an exciting summer for us. You certainly won’t find the summer doldrums here!

What’s Driving the Market Now?

June 5, 2018, 10:58 am

Each earnings season gives us a chance to take a close look at the assumptions that guided the market previously. With first-quarter earnings finally receding in the rear view, it’s clear to all that the U.S. economy remains as robust as we’ve seen it this decade.

Profits are tracking 24.5% above last year’s levels, thanks in large part to widespread tax relief and relaxed regulation on industries that were straining to cut through government red tape. Guidance was good enough to suggest that growth will continue at a rate of 19% or higher in the current quarter and throughout the year to come.

These numbers are nothing short of spectacular. Even long-term investors only get to see earnings growth like this a few times a decade. Only the initial rush of recovery from a full-fledged recession feels better, and if we can anticipate performance even close to what we captured in 2003 and again in 2010, that growth story is going to be enough to make tactical traders a lot of money.

In the broader economy, 2.2% growth may be slower than some economists would like, but it’s better than what we’ve seen for much of the decade. As we learned last Friday, unemployment is at its lowest level in a half century, and while the Federal Reserve is raising interest rates, the drag hasn’t been more than consumers or corporations can bear. We’ve already seen that 3% bond yields are not going to trigger an instant meltdown, and they actually are a sign that the world is returning to normalcy after a dramatic recession and difficult recovery.

All these factors give the market what it needs to keep healing after the correction earlier in the year. Last week ended with the S&P 500 in the green, and its technicals are looking good. The index broke through its key 2,740 level on Friday – a level it hasn’t seen since mid-March – and then traded around it yesterday. This is very healthy action, but we remain in a headline-driven environment so I am not ruling out a few broader market swings.

The U.S.-China deal is still in the works, and I expect Wall Street to pay very close attention to any news (or tweets) on the matter. Things seem to be back on track for the North Korea and U.S. summit next Tuesday, but as we’ve seen before a lot can happen in a week that impacts any plans.

In addition, the G7 summit begins on Friday, and headlines about trade wars and tariff threats leading up to it could be especially market-moving as the United States’ allies are against the tariffs on steel and aluminum the Trump administration levied on Canada, Mexico and the European Union (EU).

The good news is that any rocky trading will open up attractive opportunities on dips, and pullbacks on strong stocks with solid underlying uptrends are a great place to put your money to work.

Can You Make Money in the Current Environment?

May 30, 2018, 10:26 am

The old adage “sell in May and go away” didn’t really apply until the very end of the month as the strong first-quarter earnings season was more than able to offset the rise in the 10-year Treasury yield above 3%. This is a big deal because the similar rise back in February cracked the market, so it was very good to see stocks brush off the move this time.

However, Italy’s 10-year bond is starting to get more attention, with its yield flying from 1.79% at the start of the month to 3.16% yesterday. The new Italian government’s ambitious tax cut and spending plans, along with the potential end of quantitative easing (QE) in the European Union (EU), have helped drive the higher yields. The absolute levels remain very low, lower than the U.S. 10-year Treasury yield and not even close to the 8% yields Italian bonds touched in 2011; however, it is the rapid rate of change that has some investors on alert since the rout in stocks that occurred back in the summer in 2011 is far from forgotten.

The good news is that there are a few balls in the market’s court that could limit the selling over the near term. First, there is no sign of contagion within the eurozone right now. While Spanish yields have also risen, they remain very low at 1.62%. Second, U.S. 10-year Treasury yields have fallen comfortably below 3% in a flight to safety. Given the turmoil, there is also a chance that both the Federal Reserve and European Central Bank (ECB) will take more dovish stances, opening the door for the ECB to extend its quantitative easing program.

Third, the NASDAQ is providing good leadership, and we saw that again yesterday as it hung in better than the S&P 500 and Dow. And finally, we are just a little over a month away from the next earnings cycle, and the issues surrounding Italy should not have a negative impact on the current quarter’s results, so it is hard to get too bearish in front of what should be another strong earnings season.

While we could be in for a bit more selling, I don’t expect the S&P to drop below 2,600 in front of the coming cycle unless there’s more bad news on the macro front, like a rise in the Spanish bond yields above 2%. (Yes, Italy’s situation has us back to monitoring Spain’s bond yields as well.)

In the meantime, one way to keep making money in the current market is through names that are not highly cyclical, have stable operations and pay healthy dividends or are buying back stock. These are the companies that do better in difficult environments, which we could see again before year-end given the many crosscurrents Wall Street has to contend with right now.

Is the Market Action Improving?

May 22, 2018, 10:25 am

Stocks held up very well considering the crosscurrents they faced last week. The first was the 10-year Treasury yield hitting 3.11%. There is nothing particularly significant about 3% in and of itself, but there has been a big increase in outstanding debt from both governments and companies – Home Depot (HD) has used a lot of leverage to buy back shares – since the financial crisis. Any incremental increase in interest rates tends to make Wall Street nervous, as government deficits will soar and companies will need to pay higher interest expenses on that debt.

Another crosscurrent was the recent strength of the dollar. Dollar weakness compared to the euro contributed to the strong earnings season that just wrapped up because it makes American goods cheaper in other countries. The opposite is true with a strong dollar, which could now be an earnings headwind in the second half of 2018.

And lastly, while higher oil prices have been a major positive for energy stocks this year, at some point they will have a negative impact on consumer spending as folks spend more of their money at the gas pump.

Despite last week’s crosscurrents, volatility throughout the market has receded by 50% since late March. While the market as a whole didn’t move much, it’s clear that investors are indeed moving money around instead of crowding to the sidelines. That rotation may not move the benchmarks, but it definitely creates winners and losers among individual stocks.

Drill beneath the S&P 500 headline numbers and a lot of names are moving in the right direction to one day push the market as a whole over the wall of worry the correction left behind. The math is instructive. About 3,400 stocks are up as of last Friday and 1,900 are down, which speaks to the general upward bias that still prevails on Wall Street.

That makes sense, as it would be hard to justify a real negative mood in the wake of the biggest tax breaks in a generation, not to mention the best earnings growth quarter since 2010. But the real story is the way relatively few of the winners are reversing course while close to half of the depressed charts have turned around.

That’s a sign of improving market breadth and a healthy indication that the market as a whole is getting ready to resume its bull run in pursuit of records. Remember, I’m still open to Dow 30k by December 31. That target is only 0.4% farther away than it was back when the year started, so the only thing we’ve really lost in the last few wild months is time.

The bulls will need a little more speed through the rest of 2018, but earnings growth alone is taking enough pressure off the multiples to make it happen.

5 Cool Britannia Stocks to Take Home a Piece of the Royal Wedding

May 18, 2018, 10:22 am

The world is buzzing with excitement over the Royal Wedding between Meghan Markle and Prince Harry this Saturday. I’ll admit it, I’m excited, too, but all this talk about the wedding has gotten me more interested in the UK outperformers that we can trade in the United States while the rest of the world sits to watch the lovebirds say “I do.” Let me share five on my radar with you now.

1. Manchester United (MANU): This is every casual soccer fan’s chance to own a piece of one of the most successful teams in history. Manchester United takes in about $765 million a year from sponsorships, merchandising and broadcast rights. With another traditionally profitable club season behind it, now is the time to build a position while the fundamentals rebuild. Sponsorships roughly pay player salaries, leaving ticket sales to cover other operating costs, while broadcast is arguably the crown jewel. In a good quarter, the rights to show Man U games is worth 15%-20% more than it was a year ago. And if the team does well, the season gets longer and fans buy more gear, covering player bonuses with a healthy margin left over for shareholders. That margin isn’t huge, but it’s ramping up fast – if the coming season is anything like the last one, analysts will be shocked at the amount of profit on the field.

2. BP (BP): Those who remember the company from its Gulf of Mexico meltdown back in 2010 may be surprised to see it now. While BP is still a big player off the Louisiana coast, it also remains the heavyweight in the UK energy landscape. This is one of the few countries on the planet where oil production is rising by roughly 80,000 barrels per day. That’s better than just about anyone else outside the Americas. With new fields opening up in BP’s North Sea turf, that trend can continue. Compare BP’s chart to Exxon Mobil (XOM) and the difference speaks for itself. With oil prices mopping up the last weakness left over from the 2014 crash, the North Sea is a good place to be.

3. IHS Markit (INFO): This is the best proxy U.S. investors have on the resilient British aerospace industry. After all, this is the company that publishes the legendary “Jane’s” guides to weaponry, ships and other defense hardware. However, that’s just one piece of the INFO empire of market data, academic publishing and business-to-business resources. Last year was huge for the company as subscribers in the energy sector made more extensive use of its geological and drilling data. This year I’m looking for slightly less robust revenue expansion but a whole lot more profit. With data providers becoming a trophy for private equity firms with too much investor cash to spend and not enough viable targets, the fundamentals mean a strategic partnership offer isn’t out of the question.

4. Myovant Sciences (MYOV): This is Britain’s best play on endocrine disorders and female infertility, but it will take years to deliver on its scientific promise. Still, with five separate Phase 3 trials currently underway, the finish line could be closer than the investment community on either side of the Atlantic currently suspects. The ultimate goal is curing infertility associated with uterine fibroids, which puts MYOV squarely in the extremely lucrative assisted reproduction space. With the science now just one step away from a final regulatory decision, $130 million in cash should take the company where it needs to be while giving shareholders plenty of upside. In the meantime, the fact that development partners are happy to buy in above $20 provides confidence that if the cash runs out someone will emerge to pick up the pieces. And if the science starts looking too good to ignore, any Big Pharma player may grab the whole company, making MYOV a potential takeover target.

5. Aptiv (APTV): This is the global giant when it comes to car parts, although it t may be more familiar under its old name, Delphi. While the company moved its headquarters to Britain after its 2009 restructuring, it only abandoned the Delphi name back in December when it spun out its powertrain business to concentrate on the components. It’s the business model that made Aptiv a Wall Street powerhouse and now it’s once again ramping profit at a steady 10%-15% per year. Car parts have been one of the strongest areas of the global market, and this is the way to play that theme in pounds. If you’re interested in more, Fiat Chrysler (FCAU) is another good option to consider. It’s a British company now, too, despite its origins in Turin and Detroit.

The History of Value Investing

May 15, 2018, 10:01 am

Value investing often conjures up images of mature, sometimes quite ordinary companies that sell for cheaper than the overall market. While it’s true that most value stocks have low metrics, there is a lot more to this strategy than numbers. It is a combination of art and science, and it begins with a mathematical principle taught in the first lesson of every Finance 101 course:

The value of an asset (i.e. business) is the present value of its future cash flows.

When it comes to value investing, I aim to scientifically value a company based on real numbers and realistic projections – the exact opposite of wild assumptions (hope) that a company will grow 20% forever. In other words, instead of jumping blindly into what’s “hot,” we’re using solid data and analysis to more accurately identify a company’s future value.

How do I do this? Believe it or not, up to the time of the Great Depression, there was no systematic method to analyze and determine a company’s value – even though the stock market had been around for decades! This lack of knowledge and discipline helped drive much of the speculation that occurred before the 1929 market crash that ushered in the depression.

Then in 1934, Benjamin Graham, the father of value investing, changed the game by publishing Security Analysis. For the first time, a scientific framework was laid out to analyze and value stocks. Security Analysis became the Bible of value investing (and remains so to this day for value investors), with the sixth and most recent edition published in 2008, nearly 30 years after Graham’s death.

The story doesn’t end there. Graham also taught his methods in a popular class at Columbia Business School, and one of his students was so impressed by what he learned that he offered to work at Graham’s investment partnership at no cost. He was turned down at first but would eventually work there for a few years until it was dissolved in 1958. That young student, by the name of Warren Buffett, then struck out on his own. He went on to be Graham’s intellectual successor and the greatest investor of our time. Graham was so influential in his life that Buffett eulogized him as a man who planted trees that other men could sit under.

Buffett refined Graham’s original methods and turned them into modern day value investing. This was necessary because Graham’s preferred method of investing – buying stocks that were selling for less than their liquidation value – became impractical. In the 1940s and 1950s, the stock market was still spooked by the crash, and there were plenty of opportunities to buy such companies. However, valuations rose as investors regained confidence in the market, and eventually there were only a handful trading at such a discount.

Buffett added qualitative methods to Graham’s quantitative approach, seeking the bulletproof franchises with large “moats” that dominate his current Berkshire Hathaway portfolio. Buffett believes – and I agree with him – that if a business is solid and keeps generating cash, the stock almost has to go up over time. Those are the kinds of businesses to invest in.

Why the Poor Response to Good Earnings?

May 8, 2018, 10:07 am

May began with stocks little changed from where they started in April despite a strong earnings season. S&P 500 earnings are expected to increase a spectacular 23% in the quarter aided by lower corporate tax rates, but it and the other major indices are well below their best levels of the year.

Why the poor response to earnings?

For one, earnings growth was already partially priced in by Wall Street since the new tax law passed last year. Two, interest rates have been on the rise and will likely continue to increase as long as the U.S. economy remains healthy. While the 10-year Treasury yield seems to stall out whenever it hits 3% (it started the year at 2.4%), there has been a much bigger increase in corporate yields.

The lowest investment grade debt, BBB bonds, now yield 4.3% after beginning the year around 3.45%. Bond yields are much more competitive than stock yields since the start of the financial crisis. Plus, the widening of the credit spreads make some analysts concerned that economic growth is peaking and that a recession is in the cards.

The good news, however, is that stocks remain cheaper than they have been for a while. The S&P is now trading at 16.8X 2018 EPS estimates of $158. The inverse of the PE gives us an earnings yield of close to 6%, which is still better than the higher bond yields.

Given this, I think stocks can still regain the lost ground and end 2018 on a high note as long as earnings continue to grow, even if it’s at a slower rate. If by year-end current estimates for S&P earnings of $172 stay in place, the index could easily close 2018 at 2,900, which is roughly 17X the 2019 EPS estimate – a 9.4% gain.

In the meantime, as long as interest rates don’t go too much higher we may see stocks drift a bit through the summer as investors are comfortable with the 2019 EPS estimates. It’s important to stay cautious during this period and continue to focus on stocks trading at reasonable valuations with strong company-specific catalysts to drive them higher over time, as this should position you for solid profits when the market begins to fire on all cylinders again.

How to Measure Risk

May 1, 2018, 11:31 am

I get a lot of questions about risk, and for good reason. Nobody likes to lose money, especially big losses that can set you back and take time to recover from. Higher-percentage losses can be more acceptable in certain kinds of trading, such as options, where traders should have smaller amounts of capital at stake per trade. But when it comes to stocks, where you may have bigger amounts of capital invested per trade, it’s important to measure and consider risk in your trading.

Risk management is a term that many individual investors hear but don’t fully understand. It can range from the straightforward, such as having set entry and exit points, to complicated formulas designed to measure risk mathematically.

Here are some ways to measure risk that you may have heard about:

1. Volatility: The most widely known measure of volatility in the overall market is the VIX, which is an index at the Chicago Board Options Exchange that determines implied volatility on the S&P 500 based on activity in options. For individual stocks, one measure is the beta, which compares the stock’s movement to a benchmark index. For example, the S&P 500 would have a beta of 1, and if a certain stock has a beta of 1.5, it is about 50% more volatile than the index as a whole.

2. Value at Risk (VaR): This metric is widely used by hedge funds and institutions. There are different ways to calculate it, but it is essentially a way to figure out what a worst-case scenario would look like for your portfolio over a specified period with a high degree of confidence.

3. The Sharpe Ratio: It is also known by other names, such as the Sharpe index, Sharpe measure and reward-to-variability ratio. It’s more of a quantitative risk/reward measurement when comparing investments. The one with the higher ratio is presumed to be the better investment because you get either more return for the same risk or the same return but with lower risk than the other investment.

Risk management doesn’t have to be quantitative, though. In fact, it shouldn’t be. Mathematical formulas can be a big help, but not everything fits that neatly into a formula.

I consider a variety of factors when assessing risk, including valuation (using a number of different metrics), beta, volume trends, technical analysis and more. I also consider a company’s fundamentals, broader market trends, specific events such as earnings reports and more.

Limit orders can be part of a risk-management strategy as well, and this is another area I get a lot of questions about. Limit orders allow you to put a sell or buy order in place to automatically trigger based on your criteria. For example, if you want to buy a certain stock but only at a pullback to a specific price, you can set a buy order that automatically triggers at that price. On the flipside, you can put in an order to trigger a sell at a specific price to either take profits or cut losses. There are also more sophisticated orders such as trailing stops, which adjust higher as a stock moves up and trigger a sell when it pulls back a specified percentage or to a specified price.

Orders do have their shortcomings, though, including the fact that specialists can see them sitting there and play some games with the related stock. Therefore, I don’t use them all of the time, but they can be effective when used appropriately.

All in all, good risk management incorporates multiple strategies and tools. Our goal is to be smart about risk while maximizing returns.

Was Last Week the Turning Point?

April 24, 2018, 11:57 am

I believe last week will go down as an important turning point for investors who’ve felt trapped in the tug-of-war around trade policy, interest rates and the future of the mega-cap tech stocks that Wall Street bulls depend on to lead the charge. Despite the broader market finishing in the red today, the S&P 500 is still up 1.3% since last Friday’s close. More importantly, the market as a whole is back in positive territory for the year. Through months of elevated volatility and sometimes stunning 9%-12% downswings, investors have made money in the past 16 weeks. There’s still a lot of ground left to recover, but the floor now looks in place.

Earnings growth is the engine that drives the rising cycle through the distractions and occasional storms. Four months ago, the market was in the early stages of what turned into the brightest earnings season since 2011 and Wall Street was ramping up fast. Investors were willing to pay 18.4X 2018 EPS estimates because after years of relative stagnation the prospect of 18% growth was too good to pass up. Over the next few weeks, the S&P surged 8% from levels slightly below where the Dow trades now, only to watch external risk factors take that profit away. Long-term interest rates looked precarious, talk from Washington about trade tariffs prompted retaliation from China, Europe and other key economic partners and Facebook (FB) and Amazon (AMZN) got caught in the rumor mill. All of these crosscurrents brought the bulls to a grinding halt.

But at the end of the day, rumors come and go and numbers paint the real picture. The same stocks that investors bought at 18.4X earnings are now trading at a multiple of 16.4X, which is a substantial discount to what the market will tolerate as long as earnings are improving fast enough to bridge the gap in a reasonable amount of time. Between tax cuts and a strong economy, that growth curve signals that even the high multiples from the beginning of the year may actually be a little cheap compared to the amount of cash these companies will generate in the next six to 12 months. That means that either the bulls have a lot of room to run or stocks will get even cheaper quarter to quarter. Multiples are not going to get much lower before institutional investors come in to capture the discounts, leaving us with a bull run in the end after all.

Given this, I remain confident that the S&P will at least hit 3,000 by year-end and the Dow will close at 29,000 or 30,000. This isn’t based on wishful thinking. It’s just where a conservative reading of the numbers points us. The cycle is still in the early stages, with barely 10% of stocks on record with their performance for the trailing quarter. But as the results accumulate, I think Wall Street will be quite pleased.