New quarter, new market

As traders and institutions put to bed the first quarter, several concerns loom large in the weeks ahead. How things play out over that time period will have important implications for the averages, given that they are not far from their all-time, historical highs. What will the Fed do in May? Will Washington pursue tax cuts and if so, will there be opposition? What will first quarter earnings look like and how will markets react to all of the above?  Let’s look in my crystal ball, shall we? Wall Street analysts expect corporate earnings to be higher by as much as 10-11%. That would be a big change from the recent past, where dismal guidance and feeble results have been the name of the game.  If the numbers match or beat expectations, that could be good for stocks. Next up, the central bank, what are its intentions between now and June? The betting is that there is little chance that the Fed will raise rates again between now and then. If so, chalk up another positive for the markets. Then there is the Washington wild card where all sorts of things could go right or wrong, depending on a fractured Republican party and a mercurial administration. Last week’s debacle, centered on the belly flop that was the House’s attempt to “repeal and replace” Obamacare has set people thinking and worrying about the future. I’m thinking that we may still need a few more days/weeks of consolidation before markets begin to climb. We have already brushed my first downside target for the S&P 500 Index at 2,323. Many times markets...

Congress’s comedy of errors

Volatility was back in the markets this week as traders watched the House of Representatives wrestle to repeal and replace the Affordable Care Act. As failure after failure marked the progress of the new bill, some wondered if this might be a hint of what the future might be under the Trump Administration. Given that this is really the first piece of legislation the new Republican Congress and White House has introduced, it might not be fair to judge the next four years by this week’s performance by our new legislators. Much that could go wrong did go wrong, but there is still a chance that something may be passed before the weekend. What confounds me is that Republicans have had seven years to come up with an alternative to Obamacare. For seven years, they have been demanding the end to the Democrats’ first attempt at providing insurance to millions of Americans and Donald Trump campaigned on his promise to repeal Obamacare. One might have assumed that Speaker of the House Paul Ryan’s alternative plan would therefore be the blueprint for change that all Republicans could get behind. That was the smoke and mirrors that was sold to the public. This week’s antics revealed that the majority of Republicans were nowhere near ready to back his plan.  Some want to simply ditch the whole effort. Others want to moderate the most draconian parts of the proposal, while still others simply want a new plan altogether. On Thursday night, after the House failed to vote on the plan (because the votes weren’t there for passage), President Trump lost his patience...

Fed rate hike sets the stage for more

This week the Federal Reserve hiked interest rates again. That’s two times in as many quarters. Back in the day, the markets would have swooned. This week they did the opposite. What gives? The short answer is investors believe both the economy and inflation are beginning to accelerate, so the Fed has every right to reduce the gas and ease its foot off the monetary pedal. There is, after all, no need to keep interest rates at historically low levels at this point. That’s good news, after buoying both the economy and the financial markets through several years of anemic growth and worries over deflation. It is one explanation for why the stock market has climbed to record highs. Another would be that with Donald Trump in the White House and Republicans a majority in Congress, most investors believe only good things are ahead of us on the economic front. So tell me something I didn’t know. Well, for starters these interest rate rises (with more to come) signal a new economic era in this country and possibly the world. After a race to the bottom in bond yields worldwide, our central bank has now reversed course. It is only a matter of time, I believe, before the rest of the world’s central bankers follow suit. Historically, rising interest rates have provided headwinds for the stock markets. Looking back, about the best that can be said was that stocks do okay for the first two years in a rising rate environment, as long as interest rates rise gradually and each rise is moderate. Call it the “goldilocks” version of...

Mushy markets in March

Investors took a break this week from the on-going Trump rally, even as the pace of change in Washington seems to be accelerating. Both the financial downside and political upside should be positive for your investment portfolio overtime. The minor consolidation I have been expecting in the stock market began this week. The averages have pulled back a little, but the S&P 500 Index, for example, has loss less than one percent from its all-time highs. That’s not exactly the end of the world… I see a meandering two steps back, one step forward, kind of market with the downside risk somewhere between 2,300 and 2,330 on the S&P 500 Index. That would equate to about a 4% move. As pullbacks go, that would be minor and necessary given the stupendous gains we’ve seen since November. Some readers, mostly Trump-haters, (and there are a lot of them in this neck of the woods) have asked why I am so positive on the markets right now. It’s simple: hope is a powerful motivator for stock market investors. So far, that hope has been justified. The repeal of Obamacare was one of the new president’s major campaign pledges. This week, Congress began work on repealing and replacing the Affordable Care Act (see yesterday’s column “America’s road toward universal healthcare.” Not bad, for a president who has only been in office for 49 days. His trillion dollar infrastructure project campaign pledge was this week’s focus in the Oval Office. Work is also progressing on federal cost-cutting, while regulation after regulation is coming under scrutiny from cabinet members/businessmen who, by their very nature,...

Markets are priced for perfection

What a week for stock investors! All the main averages and most of the minor indexes registered historic highs. No question, Donald Trump has been good for the markets. The question is when will investors begin to take profits? Calling a top (or a bottom) in the markets is notoriously difficult. Granted, over the years I have been lucky and managed to catch a turn or two once or thrice. As readers know, once we hit 2,330 on the S&P 500 Index, I expected and still do expect some profit-taking. That doesn’t mean you should panic nor do anything more than raise a little cash. My strategy is to re-employ that cash as we pull back. The timing of such a move is always more of an art than a science. Think of it as a process. Sell a little today, a little more tomorrow, and so on. I’m not looking for a big pullback, maybe 4-5%. After the market declines, use the same kind of technique to buy back stock. But don’t go overboard because I believe the Trump Rally still has legs. What, you might ask, has our new president accomplished in order to justify this on-going rally? Well, aside from a flurry of executive orders that have reversed some of the prior president’s executive orders, not very much. But it is what he has promised that has investors drinking the Kool-Aid. The litany of tax cuts, infrastructure spending, Obamacare overhaul and an end to onerous rules and regulations has given investors hope. Analysts and pundits are fueling those feelings by drawing up all sorts of ‘what-if’...

The market stalls at record highs

  Stock market averages made another batch of new highs this week only to fall back in what may be buyer exhaustion. If the trend continues, investors may be looking at a 4-5% decline from here. It is too early to tell, because one day does not make a trend. We could easily experience a rebound next week, but I would still consider the present levels of most indexes ripe for a fall. My column last week pointed out that we are now in a “danger zone.” Sure, the markets could continue to grind higher but every additional point just sets us up for an overdue correction. Since all eyes and ears are on Washington, progress on President Trump’s agenda is dictating where the markets will trade. Every television appearance and tweet by President Trump simply adds to investor expectations. At this point, investors expect that tax cuts, a wholesale revamp of rules and regulations, plus a multi-trillion dollar infrastructure spending plan is just around the corner. It is not. For those of us who understand the pace of reform in the nation’s capital, it would be best to take a longer-term approach to Trump’s agenda. It appears, for example, that health care will be the first area our legislatures will be addressing this year. That does not mean that one day soon Congress will vote on a soup-to-nuts replacement of the Affordable Care Act. Instead, expect to see a flurry of piece meal changes over the course of many months. Lawmakers will attempt to address the failings of the present health system without disrupting those who are already...