Buckling in for Possible Turbulence Ahead!

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

U.S. stock markets closed a mixed week, with the Dow Jones down 0.46%, the S&P 500 rising 0.25% and the NASDAQ gaining 1.46%. The MCSI Emerging Markets Index ended the week up 0.70%.

Big gainers in your Alpha Investor Letter portfolio included NVIDIA Corporation (NVDA), which added 5.81%, and hit a new 52-week high.

In addition, the Market Vectors Biotech ETF (BBH) climbed 3.05%, the iShares Currency Hedged MSCI Germany (HEWG) rose 2.83%, the PureFunds ISE Cyber Security ETF (HACK) gained 2.66% and the KraneShares CSI China Internet ETF (KWEB) moved 2.45% higher.

Both the WisdomTree Japan Hedged Equity ETF (DXJ) and The Walt Disney Company (DIS) fell below their 50-day moving averages and moved to a HOLD.

We are now about to enter the dog days of August. Sadly, that does not bode well for the next five weeks or so.

August historically has been a very tough month for stock markets, with stocks suffering an average drop of 6.1% during the past seven years. On Aug. 24 of just last year, the Dow dropped 1,000 points intraday to end down 588 points and the S&P 500 Index fell officially into a correction.

Looking at a longer time frame, going back to 1945, more than a third of the time, price drops of 5% or more in the S&P 500 have happened in either August or September. That’s a tough couple of months ahead.

Throw in the fact that market sentiment today is extremely bullish, and odds are that the market is due for a pullback in the coming weeks.

That doesn’t mean that you should panic and sell your positions.

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But much like a pilot who turns on the seatbelt sign ahead of expected turbulence, I only highlight this negative pattern because it is better to be psychologically prepared than not.

Portfolio Update

Berkshire Hathaway (BRK-B) lost 1.76% over the last five trading days. It is no secret that interest rates have been very low for quite some time, keeping so-called “safe” investment returns down. Low rates do not seem to have hurt Berkshire’s growth very much. Imagine what BRK-B could do with the tailwinds of higher rates blowing behind it. BRK-B is a BUY.

Vanguard Russell 2000 Index ETF (VTWO) added 1.25%. As an asset class that tends to lead the market, small caps have pushed higher in the recent post-Brexit mini bull run. Although also the first to suffer during market downturns, long-term historical data shows this sector outperforms over the long haul. VTWO is a BUY.

Markel Corp. (MKL) gained 1.39% last week. Markel will report earnings on Aug. 3 after markets close. Analysts’ consensus earnings per share (EPS) estimate is $6.97. Markel is another company that would likely benefit from higher interest rates. MKL is a HOLD.

Google Inc. (GOOGL) rose 0.56%. In a move that may benefit Google, BlackBerry (remember them?) just released a new mobile phone called DTEK50 — a second phone powered by Android. Google will report earnings on Thursday after markets close. Analysts’ consensus estimates call for $6.47 EPS on revenue of $20.76 billion. GOOGL is a BUY.

AdvisorShares Wilshire Buyback ETF (TTFS) added 1.28% last week. Formerly know as AdvisorShares TrimTabs Float Shrink ETF, TTFS is just pennies under its 52-week high — a mark not seen since last August 4, 2015 — nearly one year ago. TTFS is a BUY.

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The Walt Disney Company (DIS) lost 2.79% last week. A Disney movie production company was found guilty recently in an accident that caused actor Harrison Ford to break his leg during filming of the most recent “Star Wars” movie. Although this is unlikely to impact its bottom line, Disney’s negative press coverage may push the stock slightly lower. DIS will report earnings on Aug. 9 and analysts’ consensus estimates are calling for EPS of $1.62 on $14.15 billion in revenue. DIS fell below its 50-day moving average (MA) last week to become a HOLD.

PayPal Holdings (PYPL) lost 4.27% after reporting inline earnings. Net income rose to $0.36 EPS, meeting the average consensus estimate, and revenue beat Wall Street’s forecast by coming in at $2.65 billion. PayPal did announce a deal with Visa, but Wall Street concerns over the cost of the agreement weighed on the stock. PYPL is a BUY.

Vanguard Global ex-US Real Estate ETF (VNQI) rose 1.92%. Despite prolonged thin real estate news coverage, VNQI is now back to its 52-week high, which last was seen on August 10, 2015. VNQI is a BUY.

Illumina Inc. (ILMN) moved 0.96% higher. ILMN reported earnings yesterday, after markets closed. Illumina reported earnings of $0.86 EPS, up from $0.80 EPS year over year, and above the $0.73 EPS consensus. Revenues gained 11% year over year, hitting $600 million and beating the $593 million estimate. ILMN is a BUY.

Apple Inc. (AAPL) lost 3.20%. Apple also reported earnings yesterday after markets closed. Although beating Wall Street’s estimates, one media outlet described the report as “better than what Wall Street feared.” EPS was $1.42 and revenue was $42.36 billion. Analysts’ expectations were $1.38 EPS on revenue of $42.1 billion. AAPL is a BUY.

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Phillips 66 (PSX) added 0.65% over the previous week. Phillips 66 will report earnings on Friday before markets open. Consensus estimates call for $0.91 EPS on revenue of $23.09 billion. PSX is a HOLD.

Albemarie Corporation (ALB) dipped 0.47%. ALB will report earnings on Aug. 3 after markets close. The consensus estimate is $1.01 EPS. ALB is a BUY.

Sincerely,

Nicholas Vardy

Nicholas A. Vardy

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