Twitter report on the fall of monthly active users to 321 million from 330 million, concerns over the US negotiations and the growth of the global economy on Thursday caused IT, raw materials and materials to drop by 1.4% and the fuel and energy complex by 2.1%, reduced the main foreign indices by 0.9%: S & P - up to 2,706.05; Dow 30– up to 25,169.53 points. At the same time, real estate securities - one of the two leaders of this year with a result of + 11.4% - continue to go up.
The reason for the fall is in the US commentary about the lack of chances for the leaders of America and China to meet until March. The exchange has been waiting for a clearer announcement of the meeting since December 25 and has regained most of the positions lost on intensifying the conflict between the two countries since the beginning of October. During this time, the ETF for IT and discretionary consumption added + 17% in dollars excluding dividends.
The joy of a part of sectors was caused by strengthening the patience of the Fed in raising interest rates. Real estate and housing services were a plus of + 7% and + 6%, respectively, compared with October. Essentials returned only 1% below the beginning of October and increased by + 10% from December 25 on fears of a recession, which was expected among a quarter of Wall Street. The growth of manufactured goods by + 21% from December 25 is partly due to the increased aggressiveness of the defense doctrine and the increase in large international orders. But IT, part of the consumption and fuel and energy sector may be vulnerable.
According to S & P, an increase of + 11% per year in dollars is likely with chances of 55% after reporting an absolute majority (about 70%) of disclosed S & P companies. The day before yesterday, it showed only + 3.6% per annum of total returns including dividends, and today it is already + 7.0% per annum. This is a lot for one month!
The likelihood of a breakthrough in negotiations with China is 3% since the specifics on the implementation of structural reforms and on the implementation of the IP protection plan in the PRC will be a success, considering that there has been a plan since 2010 and has been developed since 1994. I do not exclude, with a probability of 6% -8%, an agreement on royalties of Chinese companies towards the United States.
Among the risks, for example, the deadline for the Shatdaun on February 15, on the national debt ceiling on March 1, the possibility of lowering the US rating is still in force, then the road to the new arms race is open. The upward movement of the Nasdaq took into account past expectations of a deal with China and, over time, leads to profit taking as it moves toward the realization of these undertakings.
Papers capable of growing by 20% are less and less, and growth in January was clearly part of the leverage, which can choose liquidity on a number of securities while taking profits. With a probability of 15%, you need to keep in mind the possibility of a side effect.
With a probability of 3%, a combination of risks is possible, leading to a decrease of 30%, and with chances of 16% -18%, a drop of 20% is possible.
So, from the baseline forecast for growth of + 11%, we come to a probabilistic forecast of profitability in the region of + 1.8%, which says a lot about the risks of decline. My baseline scenario is based on a unique combination of soft DCT and weak inflation with strong government support in many industries and suggests that it is not the worst option to diversify, including through alternative investments.
From positive news, a new, 6th largest bank will soon appear in the US: BB & T has bought SunTrust and will now change the brand. Together, BB & T and SunTrust will have $ 442 billion of assets, $ 301 billion of loans, $ 324 billion of deposits. Together, the top 6 US banks (JPMorganChase, BankofAmerica, WellsFargo, Citigroup, GoldmanSachs, MorganStanley) earned more than $ 120 billion in 2018. This year we can expect about + 11% in dollars from the papers of leading international investment and credit institutions. Suntrust has already shown this growth, other banks are not.
The merger, which is expected to close before the end of 2019, if approved by the regulator, is positive both for SunTrust and for the industry as a whole. In particular, for JP Morgan and BankofAmerica, the prospects for which we still do not appreciate the best way. The process of consolidation of the industry represents a certain risk for the positions of leaders only in the longer term, but it makes sense for active investors to wait until the exchange assesses the consequences of the news, and by the trend at a more favorable price, when confirmation of improved business conditions in the form of accelerating lending rates.
After negative reporting in the insurance industry, the number of candidates for purchase increases. The S & P life and health insurance segment is priced at a year-over-year profit forecast at a very attractive level of 8.0, which was only at the beginning of 2014 and 2016. MetLife on this indicator is only slightly worse than the average, 8.25, which is understandable: a company with a high capitalization has a lot of weight in the sub-index. For this reason, I would rate the paper in the context of the indicators of the industry as a whole and would look at increasing profits when determining the potential for improvement.
I think that in the very near future life and health insurance services will be in demand in America and around the world, and profit growth of +30% - + 40% per year in this sector will not be the rarest phenomenon. Against this background, a 5% reduction in the accounting value of Metlife is fraught with the consumption of capital. But if investors do not have the opportunity yet to find options for diversification with the help of other well-known securities of the sector - Aflac, Principal, Prudential, and Unum - then Metlife is a good choice if we see the growth of the market as a whole. To buy these financial instruments, like any other, you need, of course, not half a pint, but with knowledge.