Trump's Agenda Delays and Valuation Headwind Means It's Time to Switch Gears

Take profits on your so-called Trump trades, because they've done about all they can do for a while. For everything else though, be prepared to buy back in on any decent dip.

That's the way Price Headley, founder and chief of BigTrends.com, sees it anyway, when speaking with CNBC's Street Signs host Oriel Morrison Thursday evening.

In the shadow of a 14% runup from the S&P 500 since early October, largely on the expectation that President Trump would accomplish his entire agenda during his first 100 day in office. Now that it's become clear most of his campaign promises won't come to fruition right away, the bullishness is tapering off.

Headley explained "With the lost momentum from the healthcare bill not even coming to a vote when maybe more energy could have been placed on tax reform earlier, that's probably a decision the President wishes he had back to reorder. The talk now about the wall being moved into the next fiscal year - you're seeing a lot of these delay kind of comments." That's not a reason to abandon hope though. He added  "I don't think the market thinks they're not going to happen. I think the market's just starting to price in that it's going to take longer."

At the same time, the sizeable runup since early November may have fully run its course in terms of valuation. The BigTrends lead analyst went on to say "Even the blowout earnings you've got from Amazon (AMZN) and Google (GOOGL) after hours here today, to me, are basically priced in because you see the Amazon rally is just 4%. The options market expected plus or minus 4%. So, you get monster numbers, and you're not getting bigger than expected rallies."

As of the most recent look, the S&P 500 is trading at a trailing P/E of 20.9. Tech stocks like Amazon and Google are up 14.6% year-to-date, with consumer goods up a hefty 10%. For comparison, the S&P 500 has only gained 7.0% since the end of 2016. Throw in the fact that the initial reading on Q1's GDP growth rate was a paltry 0.7%, and the concern swells further.  

The solution: Change your strategy. Headley recommends foregoing the buy-and-hold temperament that that paid off so well since the fall of last year, and adopt a more proactive one. Price observed "So you're getting into more of what I would classify as a trader's market. It was easy over the past six months. Now it's going to be a lot more backing and filling. I think the market's starting to get more priced-in phase, so now it's going to become one where you've got to buy the dips and sell the rips over the coming six months, until we get through October."

That strategy doesn't necessarily apply in a bigger sense though, particularly with trades that have been red hot specifically because of Donald Trump's plans... which account for a wide swath of the market. Headley told the CNBC show's panel "I'm taking money off the table. I've got double the cash I've usually got right now because I've been booking profits across tech, across consumer discretionary - the sectors that have been driving the market. Fifty of the S&P 500's names are accounting for 80% of the S&P 500's gains this year. Just 10% of the S&P 500 driving the bulk of the marketwide advance, and most of that is tech and consumer discretionary." [That matter is detailed further by BigTrends right here.]

He rectifies the at-odds messages by explaining "The bottom line is, yes, book some profits here. Don't get bearish though - you do want to buy the dips. I'm only speculating maybe a 3% to 5% type of dip [for most of the market], not a 10% to 20% bear market kind of dip. Rates are still relatively low."

Either way, he does like a couple of ideas that may or may not need to suffer a short-term dip before becoming buy-worthy. Price concluded his talk with Morrison by saying "I do like Microsoft (MSFT) a lot out of all these tech stocks. They have a ton of cash... $125 billion . It's like a baby Apple (AAPL) in that sense. And, I like gold here. I'm looking for the inflation trade to possibly reflate, so I'm buying gold bullion though the SPDR Gold Trust (GLD) here as well."

To see and hear Price's entire interview with Street Signs' Oriel Morrison, go here.