US Breadth Update – 2016 11 01

US breadth has deteriorated for the worst. The number of stocks breaking down has increased significantly, while stocks breaking out are almost non-existent. This is a sign that the stocks that are first to break down have legs. Healthcare is one of the weakest sector as discussed in our sector move regarding Obamacare.

US Breadth.PNG

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Sectoral Move: Obamacare

Obamacare has not been working. Insurers have pulled out of the exchanges and premiums are expected to keep rising (22% in 2017). Cost of care has reached exorbitant levels. Medical equipment companies were left to charge exorbitant prices. While some hospitals are at bankruptcy valuations, the other sectors (Medical equipment and IT remain expensive).

Sector/Industry Narrative/ Theme Stocks
Hospitals Failure of Obamacare ACHC, ADPT, CYH
Drug Pharmacies DPLO, MCK
Medical Equipment ABMD, AIRM, CYNO, EW, NUVA, TFX, ZBH
IT ATHN, CERN

 

US Strategy 2016 10

A New Normal

 Summary

  • Multiple deflationary forces are at play, namely: Aging population, automation, China slowdown and cheap energy sources. This will keep growth at low levels for the foreseeable future.
  • With the bigger picture in mind, we believe that the world is entering a NEW NORMAL. This era of protracted low growth is here to stay. This also implies that the previous boom and bust cycles may come to an end. Maybe this time is really different.
  • Regardless of a rate hike or not, this rate hike cycle will be very, very slow. Given our macro view, substantially low interest rates are here to stay for the next five to ten years.
  • We envision that the US stock indices are going to grind higher, but at a VERY, VERY SLOW rate. In the new normal, investing in an index fund will yield returns that are below previous historical returns.

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