Markets climb higher

In the absence of any earth-shaking news, stocks tend to follow the recent trend. That trend, since the election has been up, so… The question to ask: when we can logically expect that trend to change? As readers may recall, my target for the S&P 500 Index is somewhere between 2,443 and 2,475, which I expect we will hit before the end of the second quarter. This week, we broke 2,400, regaining everything that was lost in last Wednesday’s 2% downdraft. Now, that 2,400 price level should act as a support for the bulls. “Are you still bullish?” asked one of my clients yesterday. “That depends upon your time frame,” I answered. In the short-term I am, if you consider that between now and say, the end of June, the markets could tack on another 2.5% or so. That’s not a bad return for 30-some days, and it is far better than the yield on the ten-year, U.S. Treasury Note (2. 24%). However, I recognize that the odds against further gains in the medium-term (this summer) are climbing. For example, the S&P 500 has not had a 3% drop since the August-November, 2016 time period, nor has it had a 5% decline since June, 2016. Given that we have had 16 corrections of 5% or more since the 2009 bottom, we are overdue for some kind of larger pullback. But in the meantime, the technology sector has been the stand-out winner so far this year. The FANG stocks (Facebook, Apple, Netflix and Google) have clearly been responsible for that leadership, representing about half the gains. Since a fair amount...

Are you ready for a 20% correction?

As the stock market makes new highs, investors tend to get greedy. They also begin to believe that what has happened in the recent past will continue to happen in the future. Actually, history shows the exact opposite. It is time to give the potential downside some thought. Hope burns brightly in the equity markets right now. Many on Wall Street believe that the Republican-dominated Congress, led by Donald Trump, “The working man’s president,” will usher in a golden era of strong economic growth and robust financial markets. The problem is that politics and investments make for strange bedfellows. At some point, I expect that the two will part ways and when they do, look out below. Now, with that in mind, have you given any thought to what you are going to do when the inevitable correction does occur? When your $1 million tax-deferred portfolio loses $120,000 in less than a month, will you panic and sell or will you hang in there or buy more? This is the time to plan your strategy—not when the markets are down eight days in a row and pundits are predicting the end of the world. Many indicators I watch are predicting that somewhere up ahead, investors should expect a substantial pullback. Stock market volatility, a sure contrary indicator of market strength, has been declining for the past 15 months. The Volatility Index is at historical lows right now. Then there is the law of physics. What goes up must come down. We are in our eighth year of a bull market. Memories of the 2008-2009 financial crises have faded. It...

The Trump Dump

  Investors were shocked this week when the U.S. stock markets fell almost 2% in one day. Wall Street blamed it on the growing scandals engulfing the White House. However, there was little follow through despite predictions that this was the beginning of the long-awaited pullback. To be honest, much of the controversy coming out of Washington—demand for Trump’s impeachment, obstruction of justice, witness-tampering, etc.—is simply partisan politics deliberately fueled by a biased media. All of the above, which had been building for days, finally reached the tipping point for investors. As weak-kneed day traders started to sell, the program computers began to join in and the rest was history. Wednesday turned out to be the worst day of the year for stocks. I actually think the carnage was a good thing. It furnished all of us a reminder that markets do go down as well as up. Ever since the November election, stocks have climbed. There has been little in the way of volatility and at most a mild 3% pullback in some of the averages over a few weeks. That is not normally how the stock market works. However, we are human and the longer something continues, the more we expect it to continue into the future. When it changes, not only are we surprised but our first reaction is to cut and run. I am sure some of you did just that this week. Over the last two days, stocks have regained about half the losses sustained on Wednesday. From a technical point of view we have at least a 50-50 chance that traders will push...

Healthcare costs are strangling us

Recently, none other than the Sage of Omaha, Warren Buffet, has sounded the alarm on what he sees as the number one threat to American businesses—rising health care costs. His advice is that we better do something and do it quickly. While Congress bickers over how to repeal and replace Obamacare, there is still a large body of American politicians who believe we should simply return to the good old days. While they fiddle with adjusting insurer’s premiums, or gutting Medicaid, the entire healthcare system surrounding them continues to burn. While they debate whether you should be responsible for your own medical insurance and how much Medicare should cover, health care costs rise at the rate of hyperinflation. Our legislators and president are strangely silent on what happens to those whose employer does not provide health insurance because they can’t afford it; (which is the case for many in small businesses). And by the way, small businesses happen to be the main employer of American labor. They are also silent on what happens to those of us whose Medicare insurance premiums, plus uncovered medical expenses, become higher than their retirement income. Recent estimates put uncovered medical costs at $260,000 for these same retirees. Of course, there is always Medicaid for the impoverished among us. But even that program, if the House has its way, will be reduced by $1 trillion this year. The politicians are focusing on the symptoms and not the cause of our healthcare problems. Mr. Buffet, a Democrat, in his recent shareholder meeting, took time to address what he called the real problem for American business,...

Markets are “Waiting for Godot”

Stocks did little this week. Despite the continued stream of negative noise spewing from Washington’s Beltway, traders and investors alike tuned out the headlines and sat on their hands. 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...