Lance Roberts is chief editor of the Real Investment Report, a weekly subscriber based-newsletter that is distributed globally. He also writes a daily blog at Real Investment Advice.
In this recent interview, which has been edited for length and clarity, Roberts discussed his current approach to the U.S. stock market, the investments he likes now and why, and the direction for stock prices this year and into 2024. In the past, Roberts’s technical and fundamental analysis approach to the market has been insightful and accurate.
MarketWatch: Where do you think the U.S. stock market is headed over the next few months?
Roberts: We’re going to see money flow into the top-performing seven- to 10 stocks that led the way earlier this year. That’s why we have added to those stocks to own between now and year-end.
MarketWatch: What are those stocks?
Roberts: The top stocks in the S&P 500
SPX
index include Apple
AAPL,
Amazon.com
AMZN,
Microsoft
MSFT,
Alphabet
GOOG,
Nvidia
NVDA,
Tesla
TSLA,
Meta Platforms
META,
and Comcast
CMCSA,
Comcast was one of the big drivers in the communication space.
MarketWatch: What other stocks do you like?
Roberts: I love pharmacy stocks. CVS Health Corp.
CVS,
is a fantastic company to own. It grows earnings every year. If you want to buy any type of medication, you’ll go to your local CVS pharmacy. They’re going to be a one-stop shop for healthcare because of Aetna and other companies they are acquiring. It also pays a very nice dividend, so I get paid while I’m holding the stock. Valuations are cheap but this company is growing earnings over time. And yet, performance has been terrible! Few investors want to own healthcare anymore. For the record, this is not a recommendation. However, we own it for our clients.
MarketWatch: What about bonds at this point?
Roberts: I’m buying long-dated U.S. Treasury bonds every time interest rates pop up. You know why? Because everyone hates them. When everyone hates something, that’s probably a good time to own it.
With Treasurys, they have never had three years of a negative return since 1787, though It’s possible that will happen this year. But remember that this is an asset that doesn’t go to zero. The U.S. government will always pay its debts, at least for now.
If the economy goes into a recession, Treasury bonds is where money is going to go to. Treasury bonds are grossly undervalued relative to stocks. Nobody wants to buy bonds right now because they think interest rates are going to 500% (laughs). I’m buying when yields pop.
MarketWatch: Which ETFs do you like to capture these trends?
Roberts: If you’re an ETF investor, it’s technology, communications, and discretionary. Specifically, if you own the S&P 500 or the Technology Select Sector
XLK,
you will be tracking the same performance of the top individual stocks such as Apple, Amazon, and Google.
“We’re going to have a performance-chasing catch-up rally.”
MarketWatch: There’s been a lot of bearish sentiment over the past few weeks especially, and yet you’re bullish.
Roberts: All of the bullish sentiment that we had back in June and July has been reversed. People are attributing a lot of very bearish themes to the market including interest rates, valuations and geopolitical concerns. Sentiment has gotten fairly negative and the positioning by professional managers has also gotten negative. To be clear, I’m bullish only for the next couple of months.
MarketWatch: So until around the end of the year. Why is that?
Roberts: There are a lot of managers who are behind the curve right now because they own more than the top-10 stocks. I believe we’re going to have a performance-chasing catch-up rally to try to get some gains on the books before year-end reporting. We should see money flows chasing those same 10 stocks. It will be a reflexive rally.
Also, earnings for the quarter have been lowered dramatically from 2022. Everyone will get excited: We beat earnings and everyone gets a trophy. This is the game they play on Wall Street. Combine this with a very oversold sentiment and negative positioning and you end with a momentum pop in the markets into the end of the year.
MarketWatch: Do you have a year-end target for the S&P 500?
Roberts: My target for the year for the S&P 500
SPX
is 4,500. We’ll get some resistance at 4,500, which is where the 100-day, 50-day and 20-day moving averages are clustering. It’s also possible we’ll get to 4,600 before year-end.
“There is a potential for recession and for lower asset prices.”
MarketWatch: What do you expect from the U.S. stock market in 2024?
Roberts: That’s when the scenario changes. I think there is a potential for recession and for lower asset prices when people recognize there is slower economic growth.
MarketWatch: So, you’re bullish in the short-term but not for next year?
Roberts: Exactly. I looked at a couple of different factors that have high correlations to recessionary events. Obviously, one of those is yield curves. I normally track 10 different economically sensitive yield curves. Then I measure how many of those on a percentage basis are inverted. Going back to the 1970’s, whenever you have 50% or more of those 10 yield curves inverted, you always have a recession, typically between 18 and 24 months later. The real risk of recession may show up in the second half of 2024.
MarketWatch: What do you want to own in a recession?
Roberts: At that point, I want to be long U.S. Treasurys. I want to own 10-, 20- and 30-year duration bonds. I also want to own defensive dividend-yielding stocks, and not corporate bonds. In a recession, corporate bonds fall as people worry about defaults. Money flows from risk to safety.
MarketWatch: To summarize, you believe that we could have an end of the year rally followed by a recession in 2024?
Roberts: As we get past the first quarter of next year, we should see a drag from the higher interest rates. Then tighter lending standards will begin to weigh on the economy. It could even happen sooner.
Michael Sincere (michaelsincere.com) is the author of “Understanding Options” and “Understanding Stocks.” His latest book, “How to Profit in the Stock Market” (McGraw Hill, 2022), is aimed at short-term traders and investors.
More: Bad news for bulls: Bears still control this market until the S&P 500 tops 4400
Also read: Why today’s ‘Magnificent Seven’ stocks have mediocre long-term prospects at best
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