Shesa's MARCH 2017 INVESTMENT BLOG

            19 March 2017

MARCH 2017 INVESTMENT BLOG

Shesa Nayak

U.S. Stock Market Commentary: There is no end to the stock market rally since the U.S election till date. Many folks that I talk to feel apprehensive about the stock market. But as long as market keeps going up, we can enjoy the ride. As I wrote, trend is our friend. The major stock market indexes (DOW, S&P 500, and NASDAQ) are near their all-time highs. We should be closely watching on the future direction of stock market. There were some important news with regard to interest rate and so called “TrumpCare”, which we will discuss in a moment. Let’s first look at the Stock Market Indexes.

U.S. Stock Market Indexes:

U.S. Indexes	3-Jan-17	Friday Close	Change this Year	% Change in 2017
DOW Jones	19762.6	20,914.62	1,152.02	5.83
S&P 500	2238.83	2,378.25	139.42	6.23
NASDAQ	5383.12	5,901.00	517.88	9.62

Fed raised Interest rate again on March 15

The Federal Reserve raised 25 basic point interest rate on 15^th March for the second time in three months. There is steady economic growth, job gains and inflation is rising to the central bank's target. Currently, the rate is in the range of 0.75 percent to 1.00 percent.

Fed Chair Janet Yellen indicated that "We have seen the economy progress over the last several months in exactly the way we anticipated, we have some confidence in the path the economy is on." The Fed also stuck to its outlook for two additional rate increases this year and three more in 2018. Fed also noted that business investment had "firmed somewhat" after months of weakness. However, Yellen also emphasized that future rate increases would be "gradual." I also do not think that Fed should be hastened to raise rate which could be detrimental to the economy. I just wanted to remind the readers that despite all these hue and cry, GDP growth for 2017 is forecasted at 2.1%, which is not remarkable. After Rate increase Gold saw its biggest one day percentage gain since September 2016.

Economic Reports

For more economy reports please visit the following link:

http://www.marketwatch.com/Economy-Politics/Calendars/Economic

Source: Marketwatch.com.

Health Care Reform (TrumpCare) & Tax Reform

As you may be aware, Republicans are trying to transit from ObamaCare to TrumpCare. The Congressional Budget Office (CBO) reported last week that TrumpCare is out. It seems devastating: 14 million people are expected to lose insurance in the first year, 24 million over time, with premiums soaring for older, lower-income Americans. In many cases, people who went strongly for President Trump could be impacted heavily. The C.B.O. thinks it would reduce the deficit, but only marginally, around $30 billion a year in a $19 trillion economy!! In my view, this bill doesn't repeal Obamacare. Neither this bill unites Republicans nor it brings down the cost of premiums. We will know more details as time passes. Let’s wait and see its impact. Based on the latest Gallup poll, as of 1 P.M. PST, 3|19|17, Trump’s approval rating has sunk to 37%, which was 45% in the previous week, one of the major reason is this healthcare reform.

Also, the latest news is that, Trump administration may not begin tax reform until late spring or the summer. Many people do not expect to see tax reform till next year. Only time will tell, let’s wait and watch. There is a humongous anticipation on the tax reform and it could cause some disappointment for the stock market in future. Let’s keep an eye.

Trading cost reduction across many brokerage

This is just for the benefit of my blog readers, in last few weeks, many brokerage houses have reduced their trading cost as indicated below:

• Fidelity cut the cost of a trade from $7.95 to $4.95.
• Charles Schwab lowered its cost of making a trade to $6.95 and then again reduced to $4.95.
• TD Ameritrade announced reduced trading cost to $6.95.
• E-Trade reduced its fees to $6.95.

India Election

The current Narendra Modi government and its two small allies won 325 seats in the 403-member state assembly of India largest state election in Uttar Pradesh. Having won more than 80 percent of the seats. It clearly indicates that Modi govt and his reform agenda – is still popular among Indians and he may be well poised for re-election in 2019.

But even after the Uttar Pradesh election win, Modi’s coalition will still be well short of a majority in the Upper House of the Parliament. Market commentators say that Modi’s inability to have both Houses of the Parliament ties his hands to conduct difficult, structural economic reforms. I believe that India would be a good place to invest selectively for next few years. Some of my blog portfolio holdings, such as, MINDEX, INCO and INDA would hopefully be doing well in months/years ahead.

What is next for the stock market?

This is a very complicated question which nobody knows the answer. Also, it’s not worth speculating what may or may not happen. Coincidently, it’s always better to be prepared for market correction. A little bit of hedging with Gold or inverse stock and taking some profit may not be bad idea. It’s difficult to predict when and how market will be shaping up. As long as we are within our investment framework, it should be fine in the long run. Despite being discipline, sometime we tend to become “indiscipline”. This is true for most of the people. Having said that, becoming too much indiscipline could be catastrophic for the investment portfolio. So, it’s better to keep reminding this in our mind.

Now let’s discuss this month’s inclusion to my blog portfolio.

iShares U.S. Financial Services ETF (IYG):

The investment seeks to track the investment results of Dow Jones U.S. Financial Services Index which is composed of U.S. equities in the financial services sector. The fund generally invests at least 90% of its assets in securities of the underlying index.

Why do I think IYG is good?

• A rising interest rate scenario is highly profitable for the financial sector as it would bolster profits for banks, insurance companies, discount brokerage firms, asset managers and overall financial sectors.
• Donald Trump is in the process of rolling back some financial regulations. He seeks to dismantle the Dodd-Frank Act, that was implemented after the financial crisis that had reduced some businesses of the banks. He is also planning to change some other rules. Relaxing of regulations will undoubtedly increase profitability of the companies, particularly banks.
• Fundamentals: Accelerating economic growth, good job market, growing consumer confidence and solid housing market may lead to higher demand for loans and all types of financial services.
• Valuation: Currently, the P/E ratio of S&P 500 is 18.61 whereas financial sector is reasonably valued with P/E ratio of 15.37.
• Composition: Most of the financial sector stock prices have gone up in last couple of months with the anticipation of rising interest rate. Hence, it may be better of buying ETF rather than individual stock. IYG comprised of the following elephants for financial sectors: JPM Chase, Wells Fargo, Bank Of America, Citigroup, VISA, MasterCard, Goldman Sachs etc. This is a very good composition even if there are one/two failures than also the fund should earn reasonably good return.

Now let’s see at the performance of IYG vs. S&P 500:

	1 Year	3 Year	5 Year	10 Year	Life
IYG return	49.51%	12.30%	17.95%	0.14%	3.68%
S&P 500	24.98%	10.62	14.0%	7.61%	9.42%

If you see above for last 5 years return, you could see that it has outperformed S&P 500. However, if we see for 10 years then it was below S&P 500. It was because of the financial sector crisis during 2008-2009. However, now the financial sector is having great momentum. If you see last 1, 3 or 5 years return than it has been doing excellent! Since IYG has a great composition of financial sector, it would be a good investment without taking much risk and without restricting to a specific stock. It’s currently trading at $112.83 which is just below its 52-weeks high of $116.83. I already have IYG in my portfolio over last couple of years and prefer to keep accumulating with any correction.

Risk: None of the equity is without risk. As such, IYG is no exception. Stock market has been making new highs and now at the peak. Any correction would cause the prices to go south. So, it’s important to make a calculated move rather than throwing the towel thinking that financial sector is doing well. If we want to take a reasonable risk and growth then I believe IYG fits the bill..

Shesa’s Blog Portfolio (updated: 3/20/17):

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Change	My View (see disclaimer).
STOCK
AAPL	54.09	139.99	1/25/13	159%	HOLD
BIDU	86.43	176.62	4/18/13	104%	HOLD
SLW	21.8	19.9	10/1/13	-9%	BUY below 18.
FB	47	139.84	11/13/13	198%	HOLD
TSLA	135	261.5	11/13/13	94%	HOLD
MA	78.06	112.83	12/12/13	45%	HOLD
AMZN	311.73	852.31	4/12/14	173%	BUY below 800.
MO	52.03	75.16	9/13/15	44%	HOLD
BABA	67.28	105.61	2/21/16	57%	BUY
JBLU	20.44	20.16	4/24/16	-1%	HOLD
JD	23.45	31.56	5/22/16	35%	BUY
ABX	22.21	18.85	7/4/16	-15%	Buy below $18.
XON	26.37	20.99	7/4/16	-20%	BUY
LUV	36.89	53.18	9/5/16	44%	HOLD
FSLR	37.58	31.83	10/8/16	-15%	HOLD
RIO	38.76	43.03	12/18/16	11%	BUY below $40.
PVH	92.82	94.65	1/22/17	2%	BUY
JUNO	23.13	22.95	2/19/17	-1%	BUY
ETF
GDX	26.88	22.67	4/1/13	-16%	BUY below $20.
INDA	31.94	31.12	3/15/15	-3%	BUY
INCO	34.46	37.73	5/15/15	9%	BUY
IHF	139.1	134.88	8/16/15	-3%	HOLD
XLY	77.76	87.36	8/16/15	12%	HOLD
PJP	69.43	59.11	10/18/15	-15%	HOLD
EEM	32.5	39.49	11/15/15	22%	BUY
IYG	112.83	112.83	3/19/16	0%	NEW ADDITION
MUTUAL FUND
FBIOX	117.73	204.79	3/1/13	74%	Accumulate
PRHSX *	52.48	66.35	2/2/14	26%	HOLD
FSCHX *	128.91	164.86	4/12/14	28%	HOLD
FSCRX *	27.17	32.23	10/25/14	19%	HOLD
GASFX *	28.19	29.64	12/20/14	5%	HOLD
PRMTX *	61.72	82.45	12/20/14	34%	HOLD
MINDX *	26.48	29.42	6/14/15	11%	Accumulate
MCDFX *	13.84	15.28	12/9/15	10%	Accumulate
FSRPX *	95.32	117.39	1/15/16	23%	Accumulate
FBSOX *	38.65	45.29	3/20/16	17%	Accumulate
TGLDX	33.73	36.72	11/20/16	9%	BUY
* Indicates dividend adjusted

Positions closed since last Blog: NONE

Earnings Updates

JD.com (JD) posted a solid revenue growth of 47% increase in fourth-quarter revenue, surpassing the ecommerce company’s own forecast of 75 billion to 77.5 billion yuan. On an adjusted basis, JD earned 0.39 yuan. Revenue climbed to 80.25 billion yuan, above 76.3 billion consensus. For the next quarter, JD.com said it expects revenues between 72.3 billion yuan and 74.3 billion yuan, just above the 72.35 billion yuan analysts are expecting. JD.com seems to be one of the better Chinese ADR in-line with BABA. < BUY >.

XON: It earned Revenues of $46.00 million, Net Earnings of $-44.14 million. It provided the guidance for its long pipelines for healthcare, food, environmental services update during earnings release.  < BUY >.

JUNO: Earned a Revenues of $21.15 million, Net Earnings of USD -52.78 million.   < BUY >.

That’s all for today. Wish you good investing! Stay tuned for my APRIL 2017 blog. Thanks for your time. If you want to get alert on my action then please subscribe to shesagroup_invest@googlegroups.com. Also, feel free to send me your comments and suggestions or alert request to shesa.nayak@gmail.com

Disclaimer: This blog is meant to provide my personal opinion rather than professional recommendation to buy/sell any stock, ETF, mutual fund or any other security(s). As an investor, it’s your hard earned money and you decide what is best for you. The above are merely my own opinions and some of the information provided may not be correct. Please contact a professional money manager to buy/sell any security. I do not earn any commission by writing the blog. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow.

Note: Click on Blog archives to read all my Blogs and updates.