Home Forums Hunting & Shooting Hunter's Campfire Don't look now but stock market is booming

I pray that you can see the future, this would be outstanding!

16 years is when I want to retire.... so that could be a bad time for me. Hopefully all of the growth leading up to then will carry me through.

Market Commentary, May 1 2018


by Rida Morwa
High Dividend Opportunities

The month of May has started with investor pessimism on the rise which has kept a lid on the market. We have noticed in the past couple of weeks many companies beating analysts expectations just to see their prices decline. We are seeing a continuation of volatility as investors are finding new excuses to be nervous. The latest fears can be attributed to the following:

Tomorrow we should hear from the Federal Open Market Committee’s (FOMC) for the month of May an interest rate decision, which will be announced tomorrow at 2:00 p.m. Eastern Time. The two-day meeting has started and U.S. Treasury yields have been creeping higher on expectation of further rate hikes. I think that the Fed will not increase interest rates in May, but they are likely to signal an increase in June based on higher inflation.

According to Morgan Stanley, investors's expectations for future returns for equities are currently at an 11-year low, meaning they’re at their weakest level since before the financial crisis.

Apple (AAPL) will report earnings tonight and the response to their numbers could have some impact on where the market is headed in the near term.
I think that investors' fears are not justified:

First, I would like to say that while rising interest rates are a near-term threat to equities, they should not derail the current momentum. Despite the ongoing rate hikes, we are still in a low interest rate environment. High-yield stocks that we invest in remain the best investment alternative given that 10-year treasuries are still yielding less than 3%. Here I would like to emphasize the fact that most of our recommended stocks are reporting fast growth and increasing their dividend payout as they are benefiting from the current economic expansion. This is different from investing in bonds as bond yields do do increase with time.

Another point to note is that most stocks that we hold did not participate in the recent market rally, and therefore are currently trading at very low valuation multiples despite a very positive outlook. As an example, we are noticing renewed interest in the Midstream Space and Property REITs, as companies in these two sectors are seeing stellar earnings. Investors are finally realizing that higher interest rates have not impacted the earnings potential of these two sectors, and it is no surprise that we are seeing strength in these two sectors at a time when growth stocks appear to be weak.

Second, concerns about low returns for equities are unjustified. One has only to look at corporate earnings. Reported annualized earnings growth so far have been at a fast rate of 20%. For the first quarter of 2018, 53% of the S&P 500 companies have already reported, of which 79% announced a positive earnings-per-share surprise, and 74% reported a positive sales surprise. Should the 79% remain as the final number for the quarter, this will mark the highest percentage of positive surprises since the financial crisis as reported in the 3rd quarter of 2008.

Third, investors' pessimism is a good contrarian indicator for equities and could mean that markets are likely to continue to rally given the strong economic environment combined with corporate earnings growth.

While I suspect that market volatility will continue, I believe that the markets are set for a big rally over the next few months, and we should close the year much higher from here. The trick is to look at the big picture and keep a positive attitude, especially at a time when investors' pessimism is on the rise for reasons that are unjustified.

We are very well positioned for both high income and capital gains, and I believe that our portfolio is set to strongly outperform going forward.

I gained 1.3% today. One of the best days I ever had. My only bad was AT&T and Fidelity Communications ETF went down and Spirit airlines went down. Other than that , it was a very good day.

MARKET COMMENTARY - 12 May 2018

Rida Morwa

The U.S. equity markets ended this week higher recording their biggest weekly gain since March 2018. The S&P 500 index was up 2.4% for the week. This rally was mainly driven by both Energy and Healthcare stocks:

Drug makers and other healthcare companies climbed after investors sized up President Donald Trump’s latest plans to rein in drug prices and concluded any policy changes did not pose immediate threats to healthcare company profits.

Our bullish outlook for energy stocks and crude-oil prices has finally played out in the 2nd quarter, with Brent and West Texas Intermediate trading above $70 per barrel on a tightening supply-demand balance and, more recently, news that the Trump administration would restore sanctions on Iran. Energy stocks saw a big rally as result of higher oil prices.

US oil and gas producers continue to take market share, while surging activity levels and output in the Permian Basin mean that oil and natural gas produced in this area trades at a significant discount to comparable benchmarks. This blowout in regional price differentials signals a need for additional takeaway capacity to alleviate local gluts and deliver more volumes to areas of need. This is a great opportunity for our well-positioned Midstream MLPs to continue to see fast earnings growth over the next quarters. With improving balance sheets and solid fundamentals, we expect to see material gains in our Midstream MLPs during the second half of the year.

Earnings Season is almost over

Now that over 80% of the S&P 500 companies have reported their earnings so far, we are nearing the end of a very strong earnings season, one of the best we have seen in decades.

On average, the S&P 500 companies that have posted their 1st quarter earnings had results 7.1% better than analysts estimates. In fact, 78% of the S&P 500 companies have reported positive earnings surprises, and 77% reported positive sales surprises.

The earnings season was also very generous to our portfolio with many beating analysts' estimates and hiking their dividends. Just last night after market close, Newtek Business (NEWT), a BDC company we hold in our "Core Portfolio", declared a quarterly dividend of $0.42/share representing a 5% hike from its last dividend of $0.40/share. As many of our companies continue to surpass analysts' expectations, we expect more capital gains and additional dividend hikes to materialize. This month our "Core Portfolio" returned 4.2% on average, outperforming the S&P 500 index which returned 3.4% for the same period.

Another factor that has been playing in favor of U.S. equities is the softening of the US dollar against other world currencies. A weaker dollar is generally bullish for U.S equities for several reasons:

A weaker dollar tends to lift corporate profits, especially for those firms with a high share of foreign sales, which means U.S. companies that rely on exports will be supported by positive earnings outlooks.

With the dollar weakening and global growth solid, this makes the case for a narrower trade deficit, which means that a drag from widening trade deficit is less likely.

The main threat to equities comes from Europe. Italy’s Five Star Movement and the League, 2 populist and anti-establishment parties, are calling for a referendum to leave the Eurozone.

It is possible that negotiations will prevail and Italy will remain in the Eurozone. However, in case a vote materializes, we could see market volatility, similar to what we have seen during the Brexit vote; We are likely to see a market pullback, but I suspect that it will not last for a long time and could create some nice buying opportunities. We should note here that our portfolio's exposure is overwhelmingly exposed to the United States, and what happens in Italy will have little impact on the fundamentals of our stock picks. We are monitoring the situation in Italy closely, and will keep members informed accordingly.

The Technical Picture

The S&P 500 index has shown significant strength this week, breaking through the 2700 level which has been a level of resistance lately. We are finally out of the consolidation pattern that we referred to in our Market Update last week. By closing towards the top of the candle, the market looks as if it is ready to continue to go higher, eventually reaching the 2800 level in the short run.

If we can break above the 2800 level, then the S&P 500 index is likely to reach towards the 2900 level after that. The current technical breakout tells me that we are going to continue the overall uptrend, as pullbacks will continue to attract opportunistic investors. This confirms my views that the S&P 500 index should close the year at the 3000 level or above, however members should expect plenty of volatility until we reach that level.

To the downside, the 2600 level underneath should offer a “floor” for the S&P 500 index.

Both macro-economic and technical trends are favoring U.S. and global equities. Equities remain the best place to invest in today's market, and long-term investors are set to be well rewarded.

Market Commentary - May 17, 2018

Rida Morwa

Earnings season is pretty much over. Although the 10-year Treasury yield currently rose again and now stands at 3.11%, investors are getting used to the notion that rates are going higher. It is worth to note here that there will not be a Fed meeting for a while, so that is working in favor of the bulls.

By looking at the charts, the bulls remain in full control. They did their job the past two days as the S&P 500 index held right where it needed to be, above the 2700 level. The index remains above all key technical levels with the trend remaining strongly to the upside.

Some things also worth noting:

Tomorrow Friday is options expiration day which usually creates some market volatility. Despite this, the VIX volatility index is much lower today, down by 3%. This tells us that investors are comfortable holding equities at this point in time.

Small-cap stocks are taking the leadership position with the Russell Index (IWM) up 1.1% for the week compared to the S&P 500 index being flat for the same period. This makes a lot of sense as small-cap companies will be the biggest beneficiaries of the recently enacted corporate tax cuts. Larger companies will also benefit, but not as much, because they usually hire expensive tax accountants and use complex strategies to reduce their effective tax rate down; so the biggest tax impact will be felt in smaller cap stocks.

In general, small cap stocks are a good indicator as to where the general markets are heading. When I see strength in the Russell 2000 index, this tells me that equities in general are likely to be heading higher. This is a very positive sign.

Oil prices have reached $71.6/barrel and we are seeing strength in energy stocks. This is apparent in our Midstream MLPs which are currently seeing strong gains. I expect the rally in the midstream space to continue as the sector is still cheap and undervalued given a solid macro outlook and increased oil and gas production in the United States.

We remain bullish on equities. The short-term trading range of the S&P 500 index is at the 2700 level to the downside, and the 2742 to the upside. If we break above the 2742, we should reach the 2800 level fairly quickly. I think that later during the year we should be looking at a move to the 2900 level, followed by the 3000 level for the S&P 500 index (or 10% higher from here).

Following the strength in small cap stocks, I am increasing the "Buy Under" price of our position in UBS ETRACS Monly Pay 2x Leveraged US Small Cap High Dividend (SMHD). SMHD provides a leveraged exposure (200% leverage) to small cap high-yield stocks which we expect will continue to rally. The new "Buy Under" price was raised from $16.60 to $17.60. Note that this product is highly volatile and is only recommended for those members with a higher risk tolerance. SMHD currently yields 18.5% so the yield provides a very good compensation for the risk. Unfortunately for our risk averse investors, there is not a non- leveraged version for SMHD. In this case, we recommend to invest instead in WisdomTree US SmallCap Dividend ETF (DES), but the yield is only 2.9%. Still DES is a good investment and should provide some nice upside potential with little price volatility for our conservative members.

HDO: Market Commentary


Rida Morwa

Market Commentary - 1 June 2018

We are still trading in a tight range between the 2700 level and the 2740 level for the S&P 500 index. Investors have been quite tense lately for several reasons:

Increased volatility this week due to the situation in Italy.

Renewed talks about trade war: the U.S. slams China with $50 Billion worth of tariffs on Chinese imports.

New tariffs are now being levied against the European Union, Canada, and Mexico, including 25% tariffs on steel, and 10% tariffs on aluminum. The EU has already said that it is going to retaliate.

We are almost in the summer season when historically trading volumes become thinner and volatility increases.

At this point, the market looks exhausted due to investors' fears. I think it is hard to tell where this market is going next in the short term, because it is being driven on pure emotion rather than fundamentals.

We have also to keep in mind that fundamentals remain very strong through a combination of faster economic growth, lower taxes and higher oil prices which are padding the bottom lines of large businesses. First-quarter earnings have surged by 24.5% -- the fastest pace since 2010, making the S&P 500 index companies cheaper today than when they were a year ago based on Price/Earnings and earnings yield valuation. This is despite the big market run that we have seen over the past 12 months. Therefore the medium-term and longer term picture looks very bullish.

But it seems to me that there are too many weak hands in the markets, and it would not be such a bad thing if we see a short-term selloff that would flush them out. Any pullback from here would be short lived and would help this market to continue its uptrend higher as the fundamentals remain very strong.

We should note here that the current volatility is having little effect on our Portfolio as high-yield stocks are back in favor due to the markets pricing in much less interest rate increased by the U.S. Federal Reserve. The European economy is still in trouble and Japan is not creating enough inflation, so both of these large economies cannot raise interest rates. Therefore it's hard for U.S. interest rates to move significantly higher. A stronger U.S. Dollar is not helping either. So the Federal Reserve will be unwilling to keep raising interest rates as spreads between U.S. rates and International rates would be too much and it could derail the U.S. economy. We just have to look at the U.S. 10-year treasury interest rate which has pulled back to 2.82% after reaching 3.1% a couple of weeks ago. The 10-year is unlikely to go much higher from here. Of course, this is bullish for the high-yield space in general and for our portfolio in particular.

I still think that in the medium and long term, we are likely to see equities move much higher from here with the S&P 500 index reaching the 3000 level before year-end, but members should expect plenty of volatility until the end of the summer season. From now until then, we are likely to see the markets slowly "melt up" higher with occasional selloffs. These selloffs should be viewed as buying opportunities. The key here is not to get scared from headline news and to keep focused on market fundamentals. Fundamentals remain very strong and in favor of equities and fundamentals almost always prevail. Long-term investors are set to be very well rewarded.



Market Commentary - 2 June 2018

The month of May is over and it was a great one for US equities. The S&P 500 was up over 2%, which was the best month since January. Small caps stocks did even better with the Russell 2000 having rallied close to 6% for its best month since September of 2017. Our "Core Portfolio" had also a stellar month returning 6.2%, more than triple the returns of the S&P 500 index.

This past week has been a volatile one. Earlier in the week, the market pulled back significantly on concerns about economic and political risks coming from Italy. We explained in a report to our members that this is a low risk situation and that it will not impact the current bull market in equities that we are seeing in the United States. On Friday, the markets were up significantly for 2 reasons:

Solid employment report coming from the United States:

The US economy reached its lowest unemployment rate in 18 years after American employers added 223,000 jobs in May in a continuation of one of the longest periods of growth in the country’s recent history. U.S. hiring rose more than the forecast in May, and wages picked up, indicating the strong labor market will keep powering economic growth. This of course is proof that the U.S. economy is doing very well and provides a solid backdrop that should keep driving equities higher.

The situation in Italy is resolved for now: In Italy, a new government was sworn in on Friday, ending the country’s longest postwar political crisis. Mr. Giuseppe Conte was sworn in as a new Prime Minister who will be heading the ministers picked by Five Star and the League political parties. The new government have vowed to reboot the Italian economy through a mix of tax cuts and spending increases after the country had the slowest recent economic growth in the eurozone. So for now, the situation in Italy is resolved. At any rate, even if we were to see renewed tensions, it is very unlikely that the situation in Italy will have any impact on the economy or the equity markets in the United States.

Both the economic data of an improved growth outlook together with a solid double-digit earnings growth this year should continue to push equity prices higher by year-end. With the forward 12-month P/E ratio for the S&P 500 at 16.2 time, I believe that the valuations of equities are still inexpensive, and that this bull market has still plenty of room to run.

The Technical Situation

The S&P 500 index remains in a tight trading range between the 2700 level to the downside and the 2740 level to the upside. On Friday, the S&P 500 index rallied significantly, reaching towards the 2740 level, but this level seems to be of resistance once again. Looking at the charts, we have formed a nice-looking hammer. The hammer of course is a very bullish sign, and I believe that it’s only a matter of time before we break out to the upside above the 2740 level. Once we do so, the index is very likely to go towards the 2800 level. We have bounced from a major uptrend line, and this looks like a continuation of the overall attitude to the upside. Eventually we will reach towards the 3000 level for the S&P 500 index and I believe we will do so before year-end. However, members should note that this does not mean that there will not be significant pullbacks from time to time due to investors' sensitivity to geopolitical situations. The markets will continue to be volatile, but the trend is still strongly to the upside favoring equity investors.

Our "Core Portfolio" is very well positioned to deliver strong returns. The vast majority of the positions we hold remain significantly undervalued and are seeing strong earnings. My best advice is to be fully invested and not worry about daily fluctuations. This is a market that should handsomely reward those who buy and hold for the long term.

Orange Okie, thanks for posting this. I have only been investing for 3 yrs. I have learned a whole lot in that time, and learned very fast how to not invest. Rida seems right. Don't worry about Italy , those Italians are so lazy and useless it doesn't matter if they are there or not. ( I'm 1/3 Italian by the way so I can say that ) . But kidding aside, it matters very little. And about the weak hands, I profit very well from weak hand cause weak hands sell in a panic and that is when I have learned to buy. Anyone who sells in a market like this is a day trader or should no the investing. I am fully invested and will put in more, most likely Fidelity Communications ETF. in small amounts if it keeps dropping, or just put it in ITOT, ( Ishares total stock fund) . .03% exp. ratio. The news is too good to have a correction , there has to be some bad news like Iran bombing or something, ,, but then it's time to buy again . My son and I were talking about investing. He is 21 and has $9,000 in stocks. He said an investors degree is useless , you'd be better of being a physiologist . Peter lynch had a degree in Phycology. What does Rida think of AT&T stocks? I bought $5,000 worth last week. I'm up 1%. Later, ihookem.,

Rida is bullish on T.

Thanks Orange Okie , my brother in Christ that I never met. I thought he might be bullish on T . I can't see it going lower, and with a 6.2% rising dividend it has to be a buy by now. Many on Seeking Alpha are writing in saying it is Enron and GE bound. They might be right if half the country gives up their cell phones and cable. DOnt see that happening withought a real depression. Off the subject here , I was talking at the town dump about depressions I told them my grandpa almost lost the farm in the town the old guys were talking about but grandpas uncle gave the bank $600 bucks with a promise they'd never take the farm. grandpa payed interest only on the farm for 15 yrs. Mom picked dandelion leaves in Utica, NY. to fill the bowl of salad to have enough to eat. I dont see this happening anytime soon, if it does, the T is in trouble.

Market Commentary, June 15, 2018

Rida Morwa - High Dividend Opportunities

The Federal Reserve lifts 2018 Interest Rate Hike Outlook

In a widely anticipated move, the Federal Reserve on Wednesday lifted interest rates by a 0.25% point. However in a surprising statement, it signaled that there will be two more rate hikes of 0.25% each in 2018 instead of the initially projected single rate hike for the year. The reason for this is that the Fed is becoming increasingly bullish on the state of the US economy amid accelerating growth and rapid job creation. This should have created some panic in the equity markets, but instead the market was resilient and kept going higher. We can attribute this to three main reasons:

Although the Fed has more confidence that the U.S. economy is on the right track, they kept their GDP growth outlook at the same pace at 2% in 2020 and at 1.8% for the long-term. This means that the Fed does not see any signs that the economy could be over-heating in the next 2 to 3 years.



More importantly, although the Fed is seeing higher interest rates in 2018, they kept their interest rate hike forecast unchanged for the year 2020 (at 3.38%) and the long term run rate also unchanged at 2.9%. This means that interest rates might increase at a faster rate in the short term, but the pace will be reduced to compensate in the longer term.



In a statement on Friday, Federal Reserve Chairman Jerome Powell signaled growing optimism on the U.S. economy while trying to reassure investors that the central bank would not derail the country’s second-longest expansion by aggressively tightening monetary policy. The Fed statement, that it will remain accomodative, is very re-assuring.

So basically what this all means is that the Federal Reserve has more confidence in the U.S. economic outlook in the short and medium term, which is of course very bullish for stocks.

So this is the reason why the markets did not react negatively on Thursday and actually the markets were up on Thursday. Later in this report, I will explain why I am even more bullish on equities now and why this bull market is set to continue going very strong. But before, I will give my assessment on why I do not think the Fed is unlikely to raise rates more than one more time in 2018, and what the impact of all this will be on high-dividend stocks in general, and our portfolio in particular.

Why the Fed is unlikely to raise rates more than once more in 2018

I think that the Fed is being too hawkish and that they are likely to raise interest rates only one more time in 2018. This should not come as a surprise as the Fed has a history of giving a bullish outlook, only to lower this outlook later, as they have done several times in the past few years. In my opinion, at best we will only see one more rate hike in 2018 for several reasons:

Higher interest rates are basically a growth and inflation container. This hawkish comment will further flatten yield curves which will narrow bank margins and make it more expensive for home buyers to finance home purchases. This is likely to push inflation rate back below the Fed target rate of 2% very soon.

The U.S. Dollar is the preferred reserve currency for the world and it is the most widely used currency for global trade. Most emerging market companies have U.S. dollar denominated debt. Higher interest rates for the U.S. dollar currency will put a huge burden on emerging markets and will slow global growth. A slowing global growth is likely to threaten U.S. economic growth and will force the Fed to reconsider hiking rates in the short term.

As stated in previous "Market Commentaries", the spread between interest rates in the United States and the rest of the globe cannot keep on widening. U.S. Treasury Rates are not only dictated by the Federal Reserve but also by the markets. For example, the 10-year treasury bill is currently at 3% while the 10-year German bond yields are at 0.48%. This is a huge 2.5% difference. Something has to give in here. European interest rates are unlikely to rise due to relatively weak economic growth, and therefore investors are likely to shift money to buy U.S. treasuries instead of European bonds. This will put a cap on how much U.S. interest rates can rise.

Impact of the Fed Statement on High-Yield stocks

High-yield stocks tend to see a knee-jerk reaction each time there is talk about interest rate hikes. On Wednesday, the Property REIT index (VNQ) fell by 2%, the Midstream MLP index (AMLP) fell by 1.8%. On the other hand, the BDC sector index (BIZD) was up by 0.2% for the day. However we are already starting to see the knee-jerk reaction reversing. I would not be concerned if we see any weakness in the Property REIT and MLP spaces because it is likely to be temporary for the following reasons:

Property REITs: Property REITs tend to see their profits grow substantially when the economy is picking up as demand for real estate and rents tend to increase. Furthermore, higher inflation coupled with economic growth is a positive tailwind for Property REITs as they start seeing their Net Asset Value go up due to the higher property price that they hold in their portfolio. One just has to look at the last earnings reports for this sector. Most Property REITs had their best quarter ever in the 1st quarter of 2018 and most raised their outlook and hiked their dividends. Property REITs flourish in this type of environment. Should we see any weakness in this sector, I would consider this as a buying opportunity. I believe that all the REITs that we hold in our Portfolio are still significantly undervalued, and the potential for capital gains is enormous over the next few years. Therefore as long-term investors, any temporary weakness should not concern us. Actually, quite a few REITs are currently trading above our recommended "Buy Under" prices, and it will be an opportunity to add positions if we see a short-term pullback.

Midstream MLPs: The Fed is projecting that inflation will pick up which is generally positive for commodities and for oil price in particular. We expect oil price to remain at least around the current levels and with bias to the upside. If this happens, it means that oil and gas production in the United States should continue to increase, which is very positive for our midstream companies. The more oil and gas is produced in the Unites States, the more profits midstream companies make. In a sense, midstream companies provide a good hedge against inflation and rising interest rates. This sector is still very cheap with plenty of upside potential.

BDC Companies: Business Development Companies ('BDC') should see a mixed outlook from rising interest rates in the short term. Most BDC companies invest in loans that have variable interest rates, which means that when interest rates go up, they tend to make more money. While raising interest rates will increase margins (and profits) on those loans that these companies have already extended (and hold in their portfolios), newer loans are likely to be less profitable. The reason is due to the flattening yield curve; BDC companies tend to borrow based on short-term rates and lend based on long-term rates. With a flattening yield curve, it will be more difficult for BDC companies to achieve high yields. Still, I believe that the current flattening yield curve is a short-term phenomenon and we are likely to see it widening as soon as the U.S. Fed becomes less hawkish on future rate hikes. This is something I would expect to happen within the next 12 months.

I remain bullish on high-yield stocks and sectors, but I would like to remind our members to remain also well diversified into growth stocks, because the bull market rally in growth stocks (and especially technology) is not over yet. We have a good exposure to growth stocks through the following high-yield CEFs, and we recommend that our members have some exposure to them:

BST (yield 4.5%)
IDE (yield 7.4%)
ADX (yield 8.8%)
USA (yield 10.3%)
LMLP (yield 13.0%)
BX (yield 7.2%)
APO (yield 6.4%)
HQH (yield 9.1%)
BCX (yield 6.5%)

For those who are looking for capital gains, I would also recommend some direct exposure to the Nasdaq index through BST or through the Nasdaq ETF (QQQ). I think it is a good idea to have a 5% to 10% exposure to both BST and QQQ in addition to the other HDO stock picks.

Why I am even more bullish on Equities today

I recently posted in a Premium Report why I believe that this bull market is set to accelerate. For those who did not have a chance to read it, the following is the link:

"Why This Bull Market Will Accelerate, Massive Gains Ahead"

I am even more bullish today and I would like to add to my thesis above:

Mergers & Acquisition Activity will pick up: Just this week, a judge cleared AT&T (T)'s $85 billion acquisition of Time Warner (TWX). The approval of this merger is likely to spark a wave of new merger deals that should drive this market higher. More mergers means that investors have more confidence in equities. So now is the time for the next round of media merger mania and I expect that this will be very bullish for equities in general.

Fund managers start to pour money into US stocks, as profit outlook is the best in the world: With the European economy still fragile and the Chinese economy expected to decelerate, the U.S. economy remains the most healthy one on the globe. Funds managers have been underweight U.S. stocks but are now shifting their money back to the United States: global fund managers poured money into U.S. equities, over-weighting American stocks in June for the first time in 15 months, on a robust profit outlook. U.S. stocks are the place to be, and this is only the beginning. I expect that fund managers will continue to shift money to the United States which will help to drive this market much higher.

I believe that this bull market will accelerate and we should see massive gains over the next 18 months. For those members who recall, in 1994 the U.S. Federal Reserve raised interest rates by 2.5%, and still the U.S. markets had one of their best years ever. The Dow Index jumped by 33% in the following 12-month period, one of its best gains in a century. The bull market back then was due to an improving U.S. and global economy, similar to what we are seeing today. This is a market that should handsomely reward those who buy and hold for the long run, and we recommend that our members be fully invested at this point.

Our View on Where the Equity Markets are heading over the next two Years

Every week, we provide our members on our views on where the markets are likely to be heading in the short and medium term. We also recently published 3 reports detailing our views on where the equity markets are likely to be heading in the longer term (over the next two to three years), and why we remain very bullish on stocks. For our members who did not have the chance to read the report, the following is the link:

"Why This Bull Market Will Accelerate, Massive Gains Ahead" (Published on June 9, 2018)
"Our Long-Term Views On The Equity Markets - Why The Bull Market Will Continue" (Published on December 7, 2017)
"S&P 500 Likely To Reach 3000 In 2018 + Impact Of Tax Reforms On MLPs, Property REITs And BDCs" (Published on December 20, 2017)

The above reports are "Must Reads."

Our Best Performers in 2018

Below is a list of our best performing investments year-to-date (in 2018):

Market Commentary - June 23, 2018

Rida Morwa and Philip Mause - High Dividend Opportunities

I would like to start by saying that there is currently a lot of negative headlines about a trade war with China which has resulted in high market volatility and a lot of investor anxiety. I also saw on our Chat Board that some members are worried and considering taking profits on our positions until things calm down. We will explain why it is still the best time to be fully invested and that members should not be worried.

Summer volatility is normal: First, as we stated in the last "market commentary," I attribute the volatility and selloffs we have seen during the past week to an overbought condition rather than fears of a trade war. Furthermore, market volatility during the summer period is quite normal as many investors are on holidays, and thin trading can result in markets going up and down.

Trade war: Despite all what we are seeing in the news today, we believe that the U.S. and China are in the process of trade negotiations. Both parties are threatening to slap more tariffs on foreign goods in order to find a more favorable settlement. We are not in a trade war situation but just an escalation of tones that will eventually be settled. So far, President Trump has used this tactic a lot: plenty of threats and some action, only to lead to a good settlement. Let us remember that a tariffs war will hurt the heartland of the Republican party, and it is not to the best interest of the United States or Trump constituents for this to go out of control. I think it is only a matter of time until things calm down. After all, a trade war would have serious negative effects on regions and industries which contain important parts of President Trump's base. American farmers rely heavily on exports. Surprisingly, the coal industry has also come to rely heavily on exports - with roughly 15% of U.S. produced coal being exported. And, of course, manufacturers rely on complex supply chains which would suffer nasty disruption in an actual trade war. It is therefore, very unlikely that the Administration will allow things to get out of hand. What if they won't? Again, we would like to re-iterate my views that a trade war will not have any significant negative impact to the U.S. economy in the short or medium term. In fact, it may give it a short-term boost because it will increase demand for domestic products. Longer term, this is definitely a negative and will increase inflationary pressures and could derail the economy. But that will take at least a couple of years to see the impact. Therefore we do not believe that a trade war, even if it materializes, will be a threat to the current bull market.

Technical charts tell a different story: Despite the fact that the S&P 500 index fell initially during the week, the index found plenty of support around the 2750 level. A lot of "value investors" stepped in to buy the dip. By the end of the week, the index turned around to form an impressive technical hammer. Of course, a hammer is very bullish, and could signify that we are trying to break out above the 2800 level for the S&P 500 index. Once we break out from this level, we are likely to see a big rally that would take us to the 2850 level and then eventually to the 2900 level and next to the 3000 level. Also during the week, the Russell 2000 (the small cap index) and the Nasdaq index made new highs again, which is not a signal that the market is anywhere near to capitulate. For the S&P 500 index, the 3000 level is our target for the year 2018, and we think we may even close much higher. To the downside, even if we break below the 2750 level, there is plenty of support at the 2700 level for the S&P 500 index and I believe that is the "floor" for this market. If we break down to this level (which I believe is unlikely), it would be short-lived and we are likely to see a very fast recovery.

A healthy economy and corporate earnings will continue to drive this market: As a reminder, large market pullbacks and "bear markets" tend to happen when the U.S. and the global economy start to see declining growth. During such times corporate earnings start to decline and result in large market losses. Currently, the exact opposite is happening. The U.S. economy is growing at its fastest pace in years. The U.S. also now has the fastest growing economy in the world, according to the OECD, or at least the fasting growing economy among the industrialized nations. The risks of hitting a recession over the next two years, in my opinion, are close to nil. Successful investing requires keeping an eye on the large picture, and the large picture looks very bright. I urge members to always remember this when reading negative headlines, especially ones that have very little impact on the economy (such as negative political headlines, or headlines about trade wars that are currently being exploited by the media.)

Valuations are reasonable: Another situation that could result in a market pullback (or a bear market) are "asset bubbles." This is when markets or real estate start trading at excessive valuations. Currently, there is no evidence whatsoever that we have reached such a situation. The forward Price/Earnings ratio ('PE ratio') of the S&P 500 index is at 17 times. With corporate earnings growth estimates for the year 2018 at 22%, 'PE Ratios' have been contracting. Today the S&P 500 index is actually much cheaper than it was 12 months ago. During the past 12 months, the S&P 500 index was up only by 13% compared earnings growth of 22%.

Other reasons to be bullish: Despite the negative headlines, there is no sign that large institutional investors are selling. With the markets seeing resiliency, this indicates to me that large investors are not worried about the current headline news.

More money is flowing into the U.S. markets: I read several articles in the past two weeks in the "Financial Times" and the "Wall Street Journal" that institutional investors are pulling record amounts of money from the Asian and European markets, and redirecting these funds to the U.S. markets. The reason is that the U.S. economy is the healthiest large economy on the globe and provides a "safe haven" for investors. Also, we have to remember that China is seeing a flattening economic growth, while Europe is struggling with a very low inflation. This is a factor that should not be discounted by investors. U.S. markets are the place to be in the next two years, and we are likely to see continued investors' interest in U.S. stocks. This of course will result in higher stock prices and will continue to fuel the current bull market. The vast majority of our portfolio is invested in U.S. equities. However, we have a couple of equity "Closed End Funds" that have a partial exposure to the European and Asian markets. Our plan over the next two weeks is to re-allocate our funds by selling these CEFs and investing in other equity CEFs that have more of a U.S. exposure. One CEF that will be affected is the Aberdeen Total Dynamic Dividend Fund (AOD). AOD has over 40% exposure to non-U.S. markets. I know that we have recently recommended this fund, and we are currently at a "break even" situation, however recent news about fund outflows from foreign markets is likely to put some pressure on this CEF and I would rather we put our money to a better use. We will be sending a "Sell Alert" for AOD in the next few days and recommending another fund with more upside potential. In the meantime, AOD has been downgraded to "Hold" status.

Conclusion

Our best advice for our members is to remain fully invested in the stocks and securities that we are recommending. This bull market has still plenty of room to run, and likely for another two to three years at least. Secular bull markets don't come often, we have the opportunity to participate in a great one today. This is a market that will reward long-term investors, and especially the ones who buy and hold. Do not try to trade this market because it will result in lost opportunities. Hold on to your positions and keep the large picture in mind. Especially do not let negative headline news that are immaterial to the state of the economy get to your emotions. At "High Dividend Opportunities," we present every week a market commentary to share with you our views about the markets. If there are any events that we believe are worth to worry about, you will be the first to know. For now, hold on tight. The summer period will continue to be volatile, but this should not slow down the bull run. It is the best time to be invested in equities, and our portfolio is very well positioned for both high income and capital gains.

Have a great weekend!

Rida Morwa & Philip Mause

Market Commentary - July 2, 2018

Rida Morwa


Me and the little wifey went to Athens, Greece this past June to meet with Rida Morwa
and discuss investing. We spent most of our time eating seafood at Mediterranean
seaside restaurants and enjoying the beautiful weather.

The markets have been acting very resilient lately despite all the negative headline news about trade and tariff wars and about rising interest rates.

The S&P 500 index fell initially during last week, testing the 2700 level for support. It found plenty of support there and then bounced significantly, with both Thursday and Friday seeing extraordinarily bullish technical signals.

Today the markets are down again after news about Canada deciding to impose tariffs effective Sunday on $12.6 billion in U.S. goods as retaliation for the Trump administration’s new taxes on steel and aluminum imported to the United States.

The market also knows that there are interest rate hikes coming, but the U.S Federal Reserve seems to be cautious using a measured approach and therefore I think rate hikes will only have a limited effect on the economy and should not slow down earnings growth.

Technical Analysis
We have tested the 2700 level for the S&P 500 index again today, and it looks like we are holding on pretty well. Keep in mind that most of the selloffs recently have been the result of politicians aimless speeches that have no impact on the economy.

This market is showing a lot of strength and resiliency which is very understandable given a backdrop of solid economic growth and accelerating corporate earnings. In fact just today, economic data showed that the U.S. manufacturing activity has surged in June. The American factory activity accelerated for the 2nd straight month, signaling momentum in the U.S. manufacturing sector. The Institute for Supply Management said its manufacturing index rose to 60.2 in June from 58.7 in May. Numbers above 50 indicate activity is expanding across the manufacturing sector, while numbers below 50 signal contraction. The details of Monday’s report were largely upbeat, with the new orders, production and employment indexes increasing.

Furthermore, the fundamentals for the US economy are very strong in absolute and relative terms compared to other major economies, and as a result a lot of money is flowing into the United States, simply because it has nowhere else to go right now.

Because of this, I think that the market is going to go higher with the S&P 500 index reaching towards the 2800 level above pretty soon, and then to the 2900 level after that if we can get the break out.

Longer-term, I still have a target of 3000 for the S&P 500 index, most likely before year-end.

Catalyst for the market to go higher
The month of July has started which of course brings the beginning of Q2 earnings season, with thousands of companies set to report earnings over the next month or so. Expectations remain high, and I believe that we are going to see some stellar earnings reports, similar to what we have seen in Q1 2018. This should act as a catalyst for this market to start breaking out to the upside.

Market Leaders
Still this is a market that looks very bullish and on the cheap side with many nice buying opportunities. The S&P 500 index is actually cheaper today than it was 12 months ago with corporate earnings rising, compressing the Price/Earnings ratios. One of the most compelling opportunities today are in the biotech and healthcare sectors and I think this sector is ready to see a strong rebound, especially after Amazon (AMZN) said it was interested in expanding into healthcare. Two high-yield strong buys are:

Tekla Healthcare Investors (HQH) - Yield 9.3%. This is a CEF that invests mainly in biotech companies
Tekla World Healthcare Fund (THW) - Yield 10.9%. This is a CEF that invests in drug and healthcare companies.
I would like to thank HDO member Joshgi1 for sharing his bullish views and charts on the biotech sector recently.

Bottom line
Members should recognize that this market may look shaky at times and will continue to see plenty of volatility, especially during the summer months.

I urge our members to stay the course and to remain calm and fully invested in the stocks and securities we are recommending and not to worry about all the noise. This is a market that is set to reward long-term investors, sooner rather than later.

Well diversified here. Mutual funds, both domestic and foreign, bonds, real estate and cash works for me. March on...

Got out of ATHM (chinese) a couple of weeks ago and building up my cash position. Europe is starting to play ball but their economies are showing some cracks. PRC may turn into a bigger paper tiger than people realize. It's time to just watch. The end of summer is coming, a time when things tend to happen. A good stock to look at is SIX, buy on September dividend date. If you don't believe me look at the 5yr chart. As a plus their annual dividend is +4%.

The market has about a 10 to 15% risk discount built in right now. As soon as the Chinese kiss and make up, that uncertainty discount will disappear and the market will correct upward. The second upward move will happen as soon as the mid term elections are clear (and the GOP keeps the senate).

As usual, the Euro's can't get out of their own way politically, and I'm not putting much money there. It has too long a history of under performing.

1994 to 2016 I made 20% compounded annually off the stock market.
2016 to 2018 I have made 50% compounded annually off the stock market.

I started in 1994:
100% MSFT

I am currently:
52% AMZN
32% GOOG
13% NFLX

I am doing well for passive investing, but I was working at a company that was taken over by Mitt Romney's group [Bain] in 1994 and watched him make over 1000% in a year.

As with most everything, those who can do and those who can’t don’t.

SIX is really streaking. I would also recommend taking a look at FUN which is trading at a discount to NAV with a 5.46% yield.