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...

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...

Earnings are better than expected

First quarter earnings are coming in higher than expected while stock indexes hover just below historical highs. All that is necessary for further gains is a catalyst and that may be just around the corner. This Sunday, French presidential elections will occur. As I wrote last week, it appears that the centrist candidate, Emmanuel Macron, has a widening lead over Marine Le Pen, the more radical right-leaning candidate. Why is that important to you? It is all about the continued stability of the European Community and their currency, the Euro. Investors are concerned that if Le Pen should win, she might try to pull France out of the EU (think of the U.K. and Brexit). If Macron wins, the thinking is that he will assure a “business as usual” attitude among the French, which would be good for the European markets and therefore our own. On the U.S. front, the House passage of a somewhat, garbled Repeal and Replace health care bill is also good news for the markets. The second attempt passed 217 to 213 on Thursday afternoon. It is not what is in the legislation as it currently stands.  By the time the Senate gets through with their version; most of the crazy stuff will have been changed, amended or just thrown out. House Republicans are risking their political future in ramming through this new legislation, which will potentially hurt a large block of the constituency that only recently voted them into office. In its current form, by the time mid-term elections occur in 2018, enough voters will have felt the full brunt of these changes in...

One hundred days does not an economy make?

Markets by their very nature are impatient. Every day they are open, something, somewhere has to be making traders money. Applying that behavior to either Donald Trump or the overall economy would be a mistake. Nonetheless, it is what it is, Friday’s first quarter GDP data, which measures the pace of growth in the U.S. economy, came at a dismal 0.7%. That was far less than expected. Most economists were expecting a number closer to 1% or more. The response from Wall Street was “where’s the beef,” meaning that there has been little to no evidence that our new president has done anything whatsoever for the economy. But what about all the new hope corporations and investors are supposed to be feeling? Well, hope doesn’t pay the bills or seemingly goose investment spending very much. Fixed investment in the nation’s plants and equipment only expanded by a measly 1.6%. To be fair, the first quarter in just about every year tends to be the weakest. Economists call it “residual seasonality.” You can think of it as the after Christmas economic hangover when spending dampens down as the credit cards bill come due.  Most traders know this, but hey, if there are suckers out there that are dumb enough to sell stock because of it then… I’d rather listen to folks like Ben Bernanke, former Fed chieftain, who thinks that a combination of low inflation, low interest rates and global growth not only justifies the level of the stock market but may point to further gains ahead. Bernanke thinks very little of the market’s rise is predicated on additional U.S....

Markets like earnings; Washington, not so much

  It was another week of volatility that saw stock averages bounce up and down within a well-defined range. It is what happens when investors are unsure of the future, but this period of uncertainty may be ending. Buoyed on the downside by good second quarter earnings thus far, but hemmed-in on the upside by political concerns, the markets have been marking time. Investors now believe that the Republicans are so disorganized that none of Trump’s initiatives will pass this year. If that were the case, traders believe the markets are too “rich.” If, on the other hand, Washington did get their act together, traders believe we could see 2,450 on the S&P 500 Index in quick order. I hate to say it, but time will tell. Technically, the S&P 500 Index came within 6 points of re-testing the intraday low it made on March 27th. I wrote last week that this re-test was likely to happen. Purists would say the re-test doesn’t count because the index never actually touched that low at 2,322.  And so we wait. It was Steve Mnuchin, the administration’s Treasury Secretary, who saved the day this week.  With the words “We’re pretty close” to bringing forward tax reform,” stocks soared on Thursday.  It just illustrates how keyed up investors are when it comes to the present debate in the nation’s capital. In a short period of time, investor sentiment has gone from everything that Trump wants will be done in his first 100 days to nothing he promised will ever get done, ever. Readers may agree that nether attitude is realistic. But that doesn’t...

Uncertainty descends upon the markets

Pick your poison—U.S.-Syrian strife, weak employment numbers, China-U.S. relations—those are just some of the issues investors had to contend with this week. Despite these potential roadblocks, the averages hung in there, losing little ground as the week closed. There was even more bad news, if you include the latest minutes of the Federal Reserve Bank’s FOMC meeting. There was much discussion among the members and a chorus of assent to begin the delicate task of reducing the Fed’s $4.5 trillion balance sheet later this year. Recall that the Fed bought mountains of U.S. Treasury bonds over the last eight years in an effort to keep interest rates low (and stimulate the growth of the economy). Now the bankers feel it may be time to start selling those bonds back into the market. They reason that the economy and the gains in employment are strong enough to weather such a move. Since this effort would be in addition to the two or three rate hikes already planned for later this year, investors are worried that even higher rates could provide an obstacle to further stock market gains. I remind readers that it is the path of interest rates this year, and not the success or failure of the Trump agenda that will worry me most. And speaking of the Trump agenda, Paul Ryan, the Speaker of the House, cautioned investors (just before taking a two week recess) that cutting taxes may take longer than expected. That did not play well on Wall Street either. As the week’s uncertainty continued to build, President Trump’s meeting on Thursday and Friday with his...