Melt-up continues

It’s been the best two weeks for the U.S. markets in decades. Investors seemingly can’t get enough stocks in their portfolios, no matter how high the indexes climb. Ain’t it grand? Over the past few weeks, I have explained in detail that the stock market is in “melt-up” mode. You may think it’s crazy, or that the gains are a result of excessive exuberance. You may even be sitting there with your arms crossed, pointing your finger at me and predicting this is all going to end badly for investors. That’s fine, provide as many opinions as you like, but stay invested in the meantime. Some ask me how you can have the U.S. dollar declining, while interest rates and stocks climb at the same time. Then there are the commodities—gold, basic materials, mines and metals—all moving up with stocks. Is there, in fact, anything except bond prices that are down? Some of the movements can be explained by expectations that inflation will be rising in the future, based on the added stimulus of the Republican tax reform. The rise in interest rates anticipates what the Fed might do as a result of rising inflation (raise rates faster than expected). The lower dollar may also signify that bond investors may be able to get a better return on their money by investing in foreign markets outside the U.S. Of course, all of the above trends can reverse on a dime next week, since no one really knows what impact the tax cuts will actually have on the economy. The interesting thing I have noticed since the beginning of the...

“Look! Up in the Sky! It’s a Bird…It’s a Plane… It’s the Stock market!”

The Dow Jones Industrial Average gained a thousand points in a month. In just the first three days of 2018, all three U.S. averages hit consecutive record highs. Overseas indexes did even better. Japan, for example, was up more than 3% on its first trading day of the year. Emerging markets continue to make new highs, while European bourses continue to climb. Those who expected the markets to tank in the New Year have thus far been wrong. How long can this last? Short sellers, convinced that stocks just have to come down, bet on a market decline and have had their head handed to them on a daily basis. Undeterred, they point to the “overbought” indicators that have been flashing red for weeks now. Investor sentiment numbers continue to climb to nose-bleed levels as well, which is usually a contrary indicator. Still, the markets climb higher. There is an old saying among traders that ‘the markets can remain irrational, longer than you can remain solvent.” It is something that all investors should not forget. We are experiencing a melt-up and if one is on the bull train, remain on it. If, on the other hand, you still have that yearly cash bonus, practice a little patience. There will come a time when you can put that new money to work, just not quite yet. We are in a period of goldilocks-type conditions that one rarely sees in the stock market. We have low, even historically low, interest rates given the growth rate of the global economy. Negative interest rates in a large part of the world are coupled...

Off to the races?

The jockeys are lined up at the starting gate. The horses are champing at the bit. Bets are being placed on everything from the condition of the track to which horse will come in first, second, third and so on. Where will you be placing your bets in 2018 in the stock market derby? Rarely have I seen so much anticipation, and at the same time, fear of the future in the investment world. I guess that is understandable, since all year where you are in the political spectrum has dictated your opinion of the stock market. If you’re a Republican and/or a Trump supporter, the markets can do no wrong and 2018 will be good (if not quite as good) as the double digit gains wracked up this year. Never mind the naysayers or those who say the tax reform legislation is not quite as robust as the Republican Congress claims. Those in the other camp are worried and the litany of concerns that plague them range from possible presidential impeachment (the Russian Affair) to a nuclear holocaust triggered by the bickering between Donald Trump and Kim Jong Un. If you are from one of the high tax states, you are livid at the impact of tax reform. But somewhere in between those views is most likely the truth. But before we can look at the individual horses in next year’s race, it would be a good idea to check the track. Allen Harris, our founder and economic guru, recently authored his 2018 outlook – click here to read arrticle. It gives us a good look at what...

The market that keeps on giving

You can’t say enough about a stock market that continues to climb, day after day, month after month. Best of all, it looks like it will continue to do so through the end of the year. What happens in 2018? Well, that may be a different story. There is no evidence, however, that things will have to change in the New Year. Thanks to the big fat tax refund check that Corporate America will receive next year, investors will be expecting several quarters of better earnings. At the very least, that should support stock prices for a few months, if not more. Let’s not get into whether the tax cuts are good or bad for the economy. If you have been reading my columns, you know my opinion on that. Instead, let’s just focus on the stock market and how things might change within the markets. For example, technology shares, especially the FANG names, have been leading the market all year. So have semiconductor stocks, a major ingredient in so many technology products, as well as large cap growth stocks. Recently, small cap stocks have started to outperform. This is largely due to the tax reform legislation. The thinking behind these gains is that small businesses who are mostly focused on domestic markets will gain the most from the tax cuts. As such, the sector has seen some outsized gains in the last few months. The question I am asking is will the leadership change in the new year?   I have noticed that since the beginning of December some lagging sectors are beginning to join the party. Energy...

Here comes Santa

  With less than two weeks until Santa Claus shimmies down your chimney, investors are betting that what the Big Man has in his sack is lots and lots of gains to finish out 2017. Now some might say that the signing of a massive tax cut is all the present investors need. After all, despite the rhetoric, we all know that the Republican tax cut is solely directed toward the wealthy, big business, and the stock market. As such, the indexes should continue to levitate between now and the New Year. Investors are stocking up on the shares of those companies that will benefit most from the windfall profits they will receive as part of the reduction in the corporate tax rate from 35% to around 21%. Many of these Fortune 500 companies, such as Cisco Systems, Pfizer Inc. and Coca-Cola, have already said they will turn over their tax cut gains to shareholders. Jamie Dimon, JP Morgan Chase Chairman and CEO, says companies will buy other companies, raise their dividends and buy back stock. Some may even raise wages, he added, as an afterthought. These stated plans fly in the face of claims by President Trump and Republican lawmakers. They have promised that corporations will invest this money in plant and equipment, use the funds to raise wages, and hire new workers–none of those statements appear to be true. The very politicians who decry “fake news” have been working overtime to spread their own brand of this dubious commodity. Since my focus has always been on the economy and financial markets, I see some troubling ramifications of...

It should be a good month for stocks

The House passed a stop-gap spending bill averting a government shut-down late last night. As a result, markets moved higher. We can expect more of the same until the next deadline, which is just before Christmas. To be honest, investors have become so used to these eleventh hour deals out of Congress that the markets hardly budge when the drama begins. December 22 is the new date investors will be watching. We will see whether a compromise can be reached on the budget for 2018 by then. In the meantime, the markets will remain focused on the Republican tax deal. The hope is that a compromise between the House and Senate will be reached in time for President Trump to sign it into law by Christmas. The stop-gap move by the House now frees the decks for legislators to focus on tax reform between now and then. Next week, the Fed meets again. Investors are expecting another Fed Funds rate hike by the end of the FOMC meeting next Wednesday. That will make three this year. There should be no surprises there, since traders have been expecting such a rate hike for weeks now. The only risk may be if Janet Yellen, the Fed chairwoman, says something unexpected during her remarks after the announcement. In the meantime, the markets are seeing quite a bit of rotational activity. While the indexes may appear to be simply consolidating across time, individual stocks and sectors are undergoing some gut-wrenching moves. This week energy, financials, technology and utilities, among others, have seen their values gyrate based on what investors perceive as under or...