Craig Johnson on Gold, Oil and Interest Rates

Mon, May 18, 2020 - 2:01pm

Craig 'Bullseye' Johnson of Piper Sandler talked to Jim Puplava on the Financial Sense Newshour. Craig explained his suspiring year-end target for the S&P 500 and also shared his thoughts on gold, oil and interest rates. See below for excerpts from his interview on the Financial Sense Newshour.

For audio, see Craig Johnson on His Year-end Target; Plus, Ralph McLaughlin Shares a Housing Market Bright Spot.

Let’s discuss your year-end target; I’m sure you’ve received a lot of flak over it.

Well Jim, you're correct. I have taken quite a bit of flak for having a year-end objective on the S&P 500 of 3600. I've said it on your show before but when I think about the question of ‘How do you value the markets?’ Do you start with P first or do you come back to E? You know, academia will tell you that you always have to start with E first to justify what P should be. But as a person that looks at charts, I start with P first.

At Piper Sandler, we’ve developed this bottoms up model that I've learned from prior technicians, some of them who have been on this show. And when we do this bottoms up model thinking about price, and what it means for the Dow what it means for the S&P, I’ve got to tell you, that hasn't changed more than 2% since I established our target back in November and the early part of December. It still points toward an objective close to 3600.

Also, I would just mention too, that if I go back and I look at all of the major peak to trough cycles, from 1928 year to date, I'd make the first observation that it only took us about 16 days, starting in February to reach bear market territory. It took us 12 to come out of it. But if I take all those prior peak to trough cycles, string them all out, look forward over the next year, it would be pointing to almost 3300 on the S&P.

What I ultimately started to think about was, ‘Is this going to play out more like 1987 given the amount of stimulus that we've put in, and how quick the Fed and also Congress have come together to put these packages?’ And I think that that 3600 number, not only is it being supported by our bottoms up model, but certainly history is leading that way.

What are your views on the energy sector?

The energy sector has been literally the best performing sector off the lows. That snapback rally has certainly left a lot of people scratching their heads and wondering why energy is performing the way it has off these lows. As I go back and have conversations with not only investors but also the terrific fundamental analysts that we work with, and I think things are so bad in energy that there is definitely the opportunity for a more meaningful relief rally to start to unfold that probably still has legs left to go.

I find it really interesting when I go back and look at over the last four weeks on an unweighted basis, we've seen energy up close to 16% and on a weighted basis and it’s up 8.5%. So, it's been among the better performing areas off these lows. But again, so many negative things have happened.

If you would have said to me, we're going to see oil prices actually go negative on the forward contract, I would have laughed. They were literally paying people to take the oil because there was no storage left. I would not have imagined a scenario where that would have played out. But I think all the negativity is there. And hence why we are equally wait the energy sector at this point in time even though it's a very small part of the market. I think it deserves an equal weight based upon what we’re seeing.

I’d like to get your perspective on gold, not only the bullion and commodity, but also the gold stocks.

At the commodity level, gold’s definitely starting to catch a bid. I still think that we need to see gold work above that 1800 level to have a bigger, more meaningful breakout from my perspective. I’m seeing a nice pick up among our industry groups. It's among the strongest and best performing inside of all of the industry groups that we've got, and certainly inside of the basic material sector.

Stocks in there like Wheaton Precious Metals have been some of the more attractive looking names for us. I still think for most people's portfolios, there's an opportunity to have a small slice of gold and I can understand why people want to have that small slice of gold because the amount of money printing that is going on at this point in time certainly is a little bit concerning. That’s leading people to want to have this hedge, if you want to call it that, in the gold stocks. But for me, it's just a slice. And for this to be a more meaningful breakout, we really need to move above that 1800 level on gold.

Where do you see interest rates going?

I suspect that rates are going to be fairly stable and probably not going to be going up a whole lot. I look at where we're at with 10-year bond yields. I'm not a fan that we're going to be going negative rates. In fact, if you look at some of the commentary from chainman Powell, it doesn't sound like it has been an effective tool to go to negative rates.

The negative consequences might outweigh the benefits of going to a negative rate environment. So, I kind of think we're going to be in this range that might be sort of consolidating sideways. And for the year, maybe we're going to see at the upper end of the range around 80 basis points, but probably sub 1% for the rest of the year for sure.

To listen to Craig Johnson's full interview click here or for an archive of past shows, visit our Financial Sense Newshour page.

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