When enough is enough?

For weeks now, ever since Christmas Eve, stocks have climbed almost straight up. It has been a classic “V” shaped recovery in the markets. We are due for a break, but who knows when. If I am correct, we should see either a 3-5% pullback or a multi-week period of back and forth. Either way, it should be nothing for you to be worried about. The worst, I would expect is that it would be a dip to purchase after all is said and done. Last week I mentioned that a U.S./China trade agreement may have already been partially discounted by the market. The anticipation of a deal was the fuel that has propelled this 18% gain in the markets since December. As to exactly when this next decline will occur is anyone’s guess. We could easily run another 1-2% from here if a trade deal is struck today or over the weekend, and if we do, just enjoy the ride. The contrarian in me recognizes that the “fast money” crowd is expecting a correction, like just about everyone else and they might be right. Afterall, markets are extremely overbought. Investor sentiment, while not yet near the September readings (just before the market correction), is over 50% (51.9% to be exact). That indicates some caution should be exercised on new purchases, but bullish sentiment would need to increase to something like 62% bulls before a pullback is all but assured. On the fundamental front, earnings expectations are dropping again. As it stands right now, Wall Street analysts are expecting overall results to increase by 7.8% this year, which is...

The origin of Black Friday

As you finish your turkey and prepare to get an early start on Black Friday shopping, you might wonder how shopping became such an integral part of your Thanksgiving holiday. The term has followed a circuitous route through our financial history. Although the term “Black Friday” is a new phenomenon, its origins date back to the late 19th century. The term was first associated with a stock market crash on September 24, 1869. Two speculators, Jay Gould and James Fisk, tried to corner the gold market. This created a boom-and-bust atmosphere in gold prices. That volatility spilled over into stocks. Before it was all said and done, stocks lost 20% of their value, while commodities fell by over 50%. Neither speculator was ever punished for their deeds (sound familiar?) due to political corruption within New York’s Tammany Hall. The term Black Friday, however, was used to describe that period of our financial history for the next century. It wasn’t until 1905 that the day after Thanksgiving had anything to do with shopping. It was in that year that a Canadian department store, Eaton’s, launched the first Thanksgiving Day parade in downtown Toronto. Santa lead the parade in a horse-drawn wagon, while Eaton’s benefited by seeing an uptick in shopping at their store the following day. But it wasn’t until 1924 that Macy’s followed the Canadian lead by announcing their own parade. A similar increase in holiday shoppers convinced Macy’s and soon other retailers across the nation, that Thanksgiving parades were good for business. Retail sales on the Friday after turned out to be so good that the government got...

The apple of our eyes

Go into just about any supermarket right now and what do you see? Bins and bins of gorgeous red, green, and golden apples. The harvest is overwhelming, but some apples are worth more than others. If you are like me, an average consumer, it takes about 23 minutes to do my grocery shopping, according to Proctor and Gamble. During that spate of time, I buy an average of 18 items out of maybe 30-40,000 choices. I have little time to browse and, most of the time, I don’t even check the prices, which brings me back to the apple cart. You see, I value my fruits and vegetables. The more local, the better, because to me, the taste is everything. Until recently, I was partial to certain kinds of apples depending on whether I was baking, cooking, or just chomping down on one freshly picked from a local orchard. That’s until I encountered the Honeycrisp. If you have sampled one, you know what I mean. They are everything an apple should be: crisp, with an electrifying mix of acidity and tangy sweetness. It is an apple worth buying, even if the price is two or three times the cost of the next best thing. Why is the Honeycrisp worth so much more than the Fuji or Gala? Is the taste really that different, or is it all a clever marketing gimmick? To understand the difference, let’s look at the apple business in general. This year the industry expects a nationwide apple crop of 256.2 million, 42-pound bushels of apples. That is about 6% lower than last year’s crop. Washington...

Mid-term elections and the markets

Next week, voters go to the polls. If history is any guide, Democrats should re-gain control of the House. The Senate, by all indications, will remain firmly in Republican hands. Does the market really care? In the very short-term, maybe, but as the year progresses, not so much. As I have written many times in the recent past, investors applaud a do-nothing congress. When the House is divided, it is rare that any new legislation is passed. That removes the government from the risk/reward equation. The markets can focus instead on fundamentals—things like earnings, the economy and interest rates. No matter how much noise comes out of the White House and partisan politicians in the legislature, investors know that the chances of any meaningful passage of legislation will have to wait until 2020 and beyond. If that is what fortune awaits us on November 6, what then should you be focusing on? Well, unemployment (or the lack thereof) is one thing I would watch. The figures for October were just announced and payrolls increased by 250,000 jobs, leaving the unemployment rate at 3.7%, the lowest in four decades or so. What is even more important was the increase in wages growth. At 0.2 %, wage gains have hit my magic number for the trailing 12-month period of 3.1%. That is both good and bad. It is good for American workers, whose wage growth is getting back to an acceptable historical trend. But, as I have cautioned before, 3% is where the Fed starts watching those numbers closely for hints of future inflation. That could be a negative for the...

Markets remain range-bound

It’s the same old song. It has been playing over and over since the end of January. Higher interest rates, a stronger dollar, and, of course, the inevitable and meaningless stream of tweets from our Tweeter-in-Chief are keeping stocks range-bound. How long will this condition persist? Both the Dow Jones Industrial Average and the S&P 500 Index have now posted their longest consolidation since 1984. The two indexes have been in correction territory for 113 trading days. That is a longer stretch than we have seen in decades—including the period of the 2008 Financial Crisis. In 1984, it took the S&P 500 Index 122 days to emerge from the swamp, while the Dow required 123 days to do it. Only two of the last 20 corrections lasted for more than 100 trading sessions. The average correction length since the inception of the S&P 500 Index is 51 trading days. The absolute longest period was 229 trading days, which happened in 1978. So what? The 2,810 level on the S&P 500 Index is providing strong resistance to the bulls, while the 2,700 level has been hard to break on the downside for the bears. The historical 12-month high for the index is 2,872.87. That’s a mere 2.5% from here. So all-in-all, investors have nothing to complain about. We are up about 4% year-to-date–not bad, given the remarkable performance of last year. Remember, we had little to no pullbacks in 2017. The average’s 20%-plus gain was an almost straight-up phenomenon And that, my dear reader, was abnormal. A reasonable investor would expect to see at least half of that gain back,...

Trump’s trade war

Over the weekend, the G-7 group of nations met to denounce the recent actions of the United States. This coming Friday, these same leaders convene in Quebec. President Trump will attend and seems determined to face them down. Ever since the Trump Administration announced plans to raise tariffs on imported steel and aluminum by 25% and 10% respectively, our allies have been livid. Some are referring to the upcoming meeting as the G-6, plus the United States. You’ve got to hand it to the president, he doesn’t back off, but given the circumstances, maybe he should. I doubt that anyone in this country believes the present trade agreements we have signed throughout the years are even remotely fair. They should be renegotiated, but there are different ways of going about it. Unfortunately, Trump used a rather “trumped-up” excuse for his actions by claiming “national security” as justification for the tariffs. Given that the tariffs will be levied principally against America’s strongest allies, is it any wonder that the G-7’s response was what it was? They rightfully believe that the Trump Administration’s blatant attempt to circumvent the World Trade Organization (WTO) is illegal. As an example, Canadian Prime Minister, Justin Trudeau, responded to the claim by saying that “Canadians have served alongside Americans in two world wars and in Korea. From the beaches of Normandy to the mountains of Afghanistan, we have fought and died together.” “Canada,” he claims, “has treated our Agricultural business and farmers very poorly for a very long period of time.” How that squares with national security is anyone’s guess. My point is why confuse the...