Chuck Jaffe Interviews Bob Bacarella

The Big Interview

by Chuck Jaffe | How Long will the Bull Market Last?

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How Long will the Bull Market Last?

Podcast: Monetta’s Bob Bacarella Discusses the Current Market Environment, Why the Bull Rally Could Continue and His Investment Philosophy

November 16, 2017
In a recent interview with Chuck Jaffe on Money Life, Bob Bacarella, Founder and Director of Monetta Financial Services, shared his views on the current market environment. “At this level I sincerely believe the market is extended but not overvalued.” Bob explained that in prior correction periods, price-to-earnings (P/E) ratios were closer to 30 times earnings and we are currently nowhere near that. “The market climbs the wall of worry,” Bob said. “Right now, we’re all worried about a correction. And when there’s a consensus like that, we’re usually wrong.”

Chuck went on to ask Bob about the potential implications of rising interest rates and less accommodative monetary policy. “We let the market be our leading indicator,” Bob explained. He observed that:

1) Global economies are generally stabilizing to improving.
2) Low interest rates could persist for a lengthy period of time. Low rates have allowed companies to lower their borrowing costs and strengthen their balance sheets.
3) Corporate tax reform is a major variable. Will corporate rates be reduced? Will companies be allowed to repatriate profits?

On this third point, Bob believes that a reduction in corporate tax rates could have a significant impact on corporate profitability, which is not yet factored into company valuations. This could lead the market and stock prices to trend higher into 2018.

Along these lines, Chuck asked Bob about the FANG stocks (Facebook, Amazon, Netflix, and Alphabet) as Bob holds some of these names in his portfolios. “We continue to hold these stocks because we see no signs of any earnings or revenue slowdown that would suggest to us that we should trim back or sell these positions. In other words, I’ll continue to hold these securities until the longer term outlook changes.”

In general, Bob encourages investors to focus on quarterly earnings to determine if a company has met or exceeded expectations. And more importantly, to pay attention to guidance. “If a company continues to demonstrate positive earnings guidance, investors should continue to stay with it and let it ride.” Quoting Peter Lynch, Bob said, “Taking gains and holding onto your losses is like cutting the top off the flower and watering the weeds. You don’t want to do that. You want to let the flower bloom.”

Too often, Bob believes that investors try to guess how high a stock will go. When a stock reaches a certain high or a certain multiple, investors may say “That’s it. It’s time to take profits.” However, Bob believes it is impossible to anticipate the demand for a particular security. Rather, he pays attention to technical indicators to know if or when things are changing.

And on the flip side, Bob says that if a company reports below expectations and lowers guidance, he usually sells it immediately. He thinks these negative trends generally continue for quarters, so he is better off redeploying capital to other sectors or stocks that are showing more positive catalysts or characteristics.

To listen to the full 17-minute Money Life interview with Bob Bacarella and Chuck Jaffe, please click the above image.

Monetta Fund Holdings
Monetta Core Growth Fund Holdings

Monetta Financial Services, Inc. | 1776-A S. Naperville Road, Suite 100, Wheaton, IL 60189 | Phone: 630-462-9800 | Email: info@monetta.com

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Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

Within the Chuck Jaffe audio transcript, Bob Bacarella expresses his belief that the educational component is second to none.

Portfolio holdings and composition are subject to change at any time and are not a recommendation to buy or sell any securities.

Mutual fund investing involves risk. Principal loss is possible. The Funds may make short-term investments, without limitation, for defensive purposes, which investments may provide lower returns than other types of investments. The portion of the Monetta Core Growth Fund that invests in underlying ETF’s that track the Index will be subject to certain risks which are unique to tracking the Index. By investing in ETF’s, you will indirectly bear your share of any fees and expenses charged by the underlying funds, in addition to indirectly bearing the principal risks of the funds. Growth-oriented funds may under-perform when growth stocks are out of favor. Please refer to the prospectus for further details. While the funds are no-load, management and other expenses still apply.

Earnings growth is not representative of the Fund’s future performance.

Price-to-Earnings (P/E) is calculated by dividing the current price of a stock by the company’s trailing 12 months’ earnings per share.

Lynch, Peter, and John Rothchild. Beating the Street: a Special Edition for Worth Subscribers. Simon & Schuster, 1994.

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