Quarterly earnings will dictate market’s direction next week

Fourth quarter earnings results for the nation’s corporations kicked-off this week. Investors will focus on those numbers as they wait for the really big show at the end of next week. Our president-to-be will be inaugurated next Friday with all the usual fanfare. Investors and the markets usually ignore these displays of pomp and ceremony, but not this time. Whether it is the mercurial nature of our new president, or the fact that a lot is riding on how successful he will be out of the gate, the stock market is hanging on every word (or tweet) he makes. Consider his press conference this week. To many, he did not say enough about his corporate tax cutting or spending plans. Traders sold the market down in a hissy fit. The pharmaceutical and biotech sector sold off hard when Trump reiterated that drug companies would be called on the carpet for their pricing behavior. Buyers, however, saw the market’s weakness as an opportunity. As a result, the damage was contained and markets have since recovered. This, I believe, will be what we can expect from the markets in the coming week. Trump’s first hundred days, according to his transition team, are chocked full of initiatives, some, truly revolutionary. I don’t see the markets taking a big fall unless it is clear that all of Trump’s efforts will amount to naught. In the meantime, earnings will drive the averages up (or down) depending on how robust the results actually are. Readers, by now, should know that the earnings game is a rigged casino where earnings estimates are deliberately low-balled so that...

Markets in good shape for now

As the equity markets continue to consolidate around record highs, investors wait for the presidential hand-off on January 20th. This could turn out to be the best thing that could happen for the bulls. Remember readers, there are two kinds of corrections; the kind we have been experiencing for the last three weeks, and the nasty kind that no one really wants to go through. The longer we back and fill, the greater the chances that the next move will be higher. The caveat, of course, is that investors’ expectations will be satisfied, once Donald Trump and Congress get down to work. That could be a big if. So far the only thing the press, the politicians and Donald Trump appear to be engaged in is a discussion on whether or not the Russians tried to hack the DNC and/or RNC. No one has said they got away with it. Come on people, why are we wasting time on this subject? Ask yourselves how many times the United States government has actively or surreptitiously interfered with another country’s election results? My God, American legislatures and presidents have actively condoned all sorts of black ops, bribery and election rigging in other countries for as long as I have been alive. In return, every other country does the same thing with varying success. It is what countries do. The repeal of Obamacare was the other, more substantial, topic of conversation this week. Note, I use the word conversation, as opposed to any action or concrete proposal, from those who want to trash the Affordable Care Act. As I have written in...

Markets square up in yearend trading

It was an uneventful week where some tax-selling, combined with anemic volume, gave us another week of sideways consolidation. There is a good chance that this trend will continue into next week as well. Since the Santa Claus rally came early this year, I was not surprised to see the market’s climb slow down. It is interesting that the prognosis for the markets in January and beyond is all over the place. The bulls believe that stocks will continue to climb through the first 100 days of the Trump administration. At the same time, interest rates will continue to rise and the dollar strengthens, although maybe not at the same pace that they have since the election. If so, we would be looking at a S&P 500 Index at 2,350-2,400 from its present level of 2,250. The Dow would break the 20,000 mark and keep going. Small cap stocks, as represented by the Russell 2000 index, would continue to outperform practically everything else, except maybe the financials. It is a rosy view, held mainly by those who either voted for Trump or have found ‘religion’ since the election. The bears (although even they aren’t that negative) expect markets to consolidate in January and February. Their argument: the markets have gotten ahead of themselves. If interest rates and the dollar continue to climb, they reason, stocks will have to sell-off. The strong dollar will negatively impact companies that depend on exports for profits, while higher rates (say 3% on the U.S. Treasury ten-year note) would provide real competition for the S&P 500 Index dividend yield, which is currently yielding around...

Stocks bump and grind toward Christmas

No surprise that stocks took a break this week. Profit-taking from the election rally has been the main theme over the last few days for investors and could continue through the New Year. As traders desert their desks for holiday shopping (present company included), volumes have petered out as world markets experience a consolidation. Remember readers that markets can correct in two ways: a sharp sell-off or this kind of sideways movement. Frankly, give me a good old consolidation anytime. They may be boring, but sharp declines, especially around the holidays, makes for unhappy investors and can ruin the office Christmas party. I am actually relieved that we have had the Santa rally a little earlier this year. Over the last two weeks I warned investors not to chase the Trump rally. Greed has given way to common sense and another week or two of consolidation might relieve a large part of what I see as “overbought” conditions. This week, U.S. investors did receive some good news. The economy actually grew by 3.5%, which was the fastest rate of growth in over two years. The third quarter results were fueled by strong consumer spending, higher food exports, and a revival of investment spending. Of course, the Obama Administration will get no credit for the facts that unemployment is at historical low levels, GDP growth is finally revving up and wage growth is starting to climb. The new administration will take credit for this revival in investor’s minds. The same thing happened in reverse when President Obama took office 8 years ago. George W. Bush left the Democrats with an...

The Fed raises rates and the markets celebrate

How different from a year ago! In December of last year, the Federal Reserve Bank hiked interest rates one quarter of one percent and markets quaked. This week they raised rates again, by a similar amount, and the markets hardly blinked. On Wednesday after the announcement, traders did sell the market off but recouped all those losses by the next day. The Fed’s decision was unanimous among its seven-member committee. It was based on the central bank’s Federal Open Market Committee’s optimism that the economy will experience further gains as will the rate of employment. They also indicated that there could be as many as three more rate hikes in 2017, depending, of course, on what the economy actually does. Chairwoman Janet Yellen in a Q&A session after the announcement said she would take a wait-and-see approach to President-elect Donald Trump’s plans to stimulate the economy. She did question the need for additional economic stimulus, however, which caught the market by surprise. Investors, heedless of an increasing chorus of warnings not to chase this market, seem to have abandoned all caution and are taking every opportunity to both sell their bond holdings and buy stocks. There are some indications that a lot of new money is coming from retail investors, who have been long absent from the equity market. But not all is coming up roses in the financial markets. The U.S. dollar continues to climb with the Euro making lows not seen since 2003 this week. The Japanese yen is also weakening further, as are emerging market currencies. No one seems to care that the strong dollar will...

Has Santa Claus come and gone?

The rally continued in the stock market as investors abandoned bonds and bought stocks hand over fist. Many think the best is yet to come, since the traditional end-of-year Santa Claus rally is still ahead of us. However, between now and then, we have the Federal Open Market Committee meeting next Wednesday. The bond market is betting on the following: that the Fed Funds rate is raised by one quarter of one percent, and the FOMC meeting minutes indicate that the Fed may raise rates two more times in 2017. Anything more than that would be hawkish and most likely cause the stock market to correct. That happened last year and cut short the Santa rally. If the Fed’s actions, on the other hand, are in-line with expectations (or even more dovish) the chances are stocks will continue to rally and so will bonds. Although most investors focus almost entirely on the stock market, which has soared since the election, few realize the devastation that is occurring in the bond market. I have continually warned bond holders that someday they would face Armageddon. It seems to be happening now. During the past three weeks, investors sold over $2.7 trillion worth of bonds. Almost a like amount of money has found its way into the stock market. But I suspect bonds are due for a relief rally fairly soon. Aside from the upcoming Fed event, one must also look at the nature of the Santa Claus rally. Usually, investors sell stocks during the first two weeks of the month. It’s called “tax-loss selling” where investors establish capital losses to offset...