Many pundits have commented on the lack of volatility in the markets. They point to the “Vix” or voracity index, which measures the level of fear in the markets. It is at historically low levels. Bears say it is a contrary indicator, because when complacency among investors is this high, down markets are sure to come, maybe so.
Markets, in my opinion, are “Waiting for Godot.”
That is the name of a famous play in which two characters (in our version, the bond and stock markets) are waiting for a third, named Godot. But Godot never arrives. Who then is Godot for the stock market?
Tax reform, infrastructure spending, and the passage of a new health care plan—any and all of the above could be the market’s Godot. All of the rest: the firing of FBI Director Comey, the five, (count them) five investigations into the alleged Russian hacking influence on the 2016 elections, the latest tweet from the president; none of it has had an impact on stock prices.
You may have noticed that traders are becoming inured to presidential tweets. I said this would begin to happen. Although the media at large is still hanging on Trump’s every word, Wall Street is learning to focus on actions, not words. This week there was little coming out of Washington that would have a lasting impact on the economy, so we wait.
The bears argue that the day of reckoning is nigh, but the most they can muster are short-term attempts to knock the markets down by a few points. Every time they do, buyers are there, bidding up this stock or that one, based on what has truly been a really good earnings season. With 90% of company results behind us, earnings were up close to 17% from this time last year. Even more importantly, revenues were higher by almost 7%.
One actual positive that most people missed was an announcement on Friday that the U.S. has agreed to a trade deal with the People’s Republic of China (PRC). Our farmers will now be able to export beef to China and allow some bioengineered seeds to be sold there. It will also allow foreign firms to provide credit-rating and electronic payment services in China. In addition, two U.S. financial institutions were licensed to underwrite bonds in the PRC. We also promised to send a high-ranking White House representative to a trade forum China is holding this weekend.
This first trade deal out of the White House has not elicited much comment. That is understandable, since it certainly flies in the face of many critics, including the media, who were convinced that a Trump presidency would set off a trade war with China, followed by a melt-down of the world’s economies.
Granted, the deal does not address some of the burning issues between our nations that Trump cited in his China-bashing rhetoric during his run for the White House. At the time, I advised readers to discount much of the campaign rhetoric Trump spouted; so far, that appears to have been sage advice.
There is an old saying—“Never short a dull market”—I would heed that advice, ignore the doomsayers, keep the faith and stay with the markets.