In the middle of a melt-up

Greed is rising. Fear is falling and all is well within the world of equities. What does that tell you? It tells me that complacency is the order of the day among investors. And that fear of missing out (FOMO) is gathering steam as every minor daily dip is met with buying. Earnings season has started, led off by the multicenter banks. You remember them, the banks that were “too big to fail.” So far, the bottom line earnings per share numbers are coming in ahead of forecasts. Their top line growth, however, in some cases, appears to be disappointing investors. Evidently, when financial markets move in one direction, these financial behemoths can’t make a lot of trading profits. As far as what used to be their bread-and-butter business of loaning money, that largely depends on interest rates. Although rates have been rising on the short end, thanks to the Fed, the overall spread between what banks charge for loans and their cost of money is still anemic. Financials, overall, are important to the stock market because historically, equities have a hard time rallying without bank participation. So far this year, financials are up but still lag the gains of the overall markets. And while our president is continuing to do whatever it takes to destroy the Affordable Care Act, the healthcare sector seems to be taking it in stride. Of course, hospital stocks are getting decimated, since investors realize that the nation’s hospitals will most likely be the victims of the President’s newest executive action. The White House’s latest move would halt all Federal payments to insurance companies...

Markets need a time out

The S&P 500 Index has gone up eight straight days. The other averages have done the same thing. That hasn’t happened since 2013. It’s time for a break. It appears that stocks are in “melt-up” mode. That’s a term we financial geeks use to describe an unrelenting rise in equity prices. Consider it an investor stampede where the fear of missing out on even higher prices creates a buying frenzy. There are some fundamental reasons for the market’s rise. The economy appears to be chugging along. Interest rates remain low while inflation continues to bump along the bottom. This Friday’s payroll numbers were a disappointment to most. For the first time since 2010, the U.S. economy lost jobs in September. While the unemployment rate dropped to 4.2%, America also lost 33,000 jobs. It doesn’t take rocket science to figure out why. Remember Hurricanes Harvey and Irma? Of course the nation lost jobs as whole businesses were flooded or blown away in sections of the country. But at the same time, readers know that what I look at in each report is wage growth. That tells me how American workers are doing and where spending is going in the months ahead. And remember, consumer spending, which accounts for 70% of GDP, is key to the future health of the economy. Good news—wages jumped sharply higher last month, rising 0.5% over the August numbers and 2.9% over the prior year. But the real reason investors are celebrating was the Republican-controlled House move to pass its 2018 budget resolution. In a 219-206 vote, the House of Representatives approved a budget resolution that...

Markets mark time

Some stock indexes made new highs again this week but overall the averages finished where they started on Monday. Next week could be different. Washington politicians will take center stage as investors await further information on the administration’s idea of tax reform. So far, there has been a lot of hyperbole but not much substance. Supposedly, some meat will be added to Trump’s bare bones ideas on Tuesday or Wednesday. And then there is what some call the “Senate’s last gasp” on health care reform. The legislation, authored by two Republicans, Lindsey Graham of South Carolina and Bill Cassidy of Louisiana, would repeal central elements of the Affordable Care Act (ACA). States would get block grants instead. The nation’s governors are divided in their support. If readers are confused on how and why this latest plan has suddenly been scheduled for a vote before October 1, here’s the reason. A few months ago, Republicans successfully labeled the repeal and replacement of the nation’s health care law as a “fiscal” goal. As such, it could then be part of a process known as budget reconciliation. Why is that important? Budget reconciliation allows certain “fiscal” measures to pass with a simple majority (which the Republicans have in the Senate). And not the usual 60 votes required (which they don’t have).  However, the deadline for this budget reconciliation expires September 30. After that, they have little chance without the Democrats’ support to repeal and replace the ACA. The hope that there might be some progress on the president’s campaign promises has buoyed the market in the face of adversity. Next week’s success...

New NK missile lands with a dud on Wall Street

The North Korean boy who cried wolf is alive and well, but seems to have less and less impact on financial markets. Kim Jong Un’s minions launched another missile over Japan last night and the markets simply yawned. Geo-politics are always a risk for the financial markets. For one thing, they are by definition unpredictable. Rarely do the antagonists worry about the economic and financial ramifications of their moves. As such, markets react quickly, but usually the impact only lasts for a short period of time. It seems that even our tweet-happy president is learning that, in this case, Kim Jong Un, the boy in the wolf’s mask, has a bark that is far worse than his bite. Have you noticed that none of those missiles hit anything? That is not by accident. Unlike the majority of Americans, I do not think Kim is either a madmen or stupid. Far from it. I believe he is a calculating despot whose single-minded purpose is to attain a seat at the table among the world’s nuclear power brokers. His missile tests are intended to do just that. He needs to demonstrate to the world that not only does he have the capability to manufacture nuclear bombs, but also the ability to deliver them in a consistent manner. His scientists and military, aided and abetted by technology from other nations, will continue firing missiles into the sea and testing nuclear devices underground until the world is convinced that he can do it. Only then, with a seat at the table as an equal, will Kim be willing to negotiate. While North Korea...

Markets brace for the weekend

Usually, the weekend is a time when traders try to relax, reduce stress, and prepare for the coming week’s markets. This weekend will be an exception to that rule. Just about everyone is focused on the latest news of Hurricane Irma’s landfall in southern Florida tomorrow and into Sunday. Over in Southeast Asia, analysts are also expecting North Korea to fire off yet another missile. Exactly where and when is up in the air. As if that were not enough, an earthquake and Hurricane Jose both hit Mexico simultaneously last night causing quite a lot of damage. Investors have no idea what economic impact these natural disasters will have on the North American economy. As for Kim Jong Un, there is always the possibility that an “accident” could happen, setting off World War III. So it is not surprising that the stock market has gone nowhere this week. About the best you can say was that the averages were mixed. The only good news seemed to be that the debt limit was passed as part of a bill that provided the first flood relief money to beleaguered Houston. That surprised many, since the deal was forged by President Trump and the Democratic leadership. Facing a protracted battle within his own party, Trump reached across the aisle for the first time in his presidency. The results were surprisingly quick and altogether positive. Of course, the rank and file within the Republican Party were at first surprised, and then angry, since they were gearing up for a protracted struggle within their own party. The various GOP splinter groups were planning on...

Markets scale a wall of worry

Hurricanes, floods, fires, even missiles could not deter financial markets this week. Instead, investors chose to pin their hopes on tax reform, or at least a tax cut. What are the chances of that happening this year? No more than 50/50 for a tax cut; far less, if you are counting on tax reform. Yesterday’s column examined the pros and cons of both, so I won’t dwell on it. If you missed it, you can always find the article on www.afewdollarsmore.com. Nonetheless, all of the President’s men were on stage this week promising not only tax cuts, but tax reform and that it will happen by the end of this year. The market’s resilience was even more impressive given the devastation that is occurring in Texas. All week the national news channels broadcast the heartache and tragedy, as well as the heroism and determination, of those who live in the great state of Texas. Now let’s hope that our legislatures come through with the aid these people so desperately need. The price tag for Harvey keeps climbing, with the latest estimates surpassing $190 billion. That would make it the costliest natural disaster in U.S. history. If that is true, a whole host of issues come to the forefront. What kinds of dents will that put into GDP economic forecasts? Houston, after all, is the fourth largest city in the nation. How does the extra money needed for Texas and Louisiana impact tax cuts or the deficit? Will the Fed put off hiking rates because of it? More trouble from North Korean missile tests in the beginning of the week...