Stocks should move higher from here

It was a good week for investors. The S&P 500 Index hit an all-time high. The Fed indicated that they might cut interest rates sometime soon, and the President is once again optimistic about a China trade agreement. That’s a heady cocktail that could see markets gain another 3-5% over the next few weeks. Of course, the critical caveat to my forecast remains President Trump’s next tweet on the progress of a trade deal with China. As you know, with such a big “if” on the table, making future forecasts with even a modicum of certainty is impossible. In last week’s column, I enumerated all the scenarios that could play out, but it really comes down to how much faith an individual has in the president’s ability to pull-off a deal with China. And while a successful agreement would definitely be good for the economy over the long term, I am not so sure it would be beneficial for the stock market. My concern rests upon the Fed’s reaction (or lack thereof) if an agreement is put in place. Chair of our Federal Reserve Jerome Powell has hinted that cutting interest rates would largely depend on what happens next on the trade front. That has sent the stock market to new highs. The Fed reasons that additional tariffs of the size contemplated by Trump would impact our economy by over one half of one percent. That would be on top of a U.S. economy that is already slowing, thanks to the existing level of tariffs, and the rhetoric of even more actions if things don’t go the president’s way....

The Suburban Dilemma

Over the last decade, the percentage of Baby Boomers, those aged 65 to 74, living in the suburbs increased by almost 50%. Over the next 20 years, that age group will double in size, and by 2040, 1 in every 5 Americans will be age 85 or older. The majority of them will continue to live in the suburbs. Older adults, it appears, move less frequently than any other age group. Over the last ten years, only 6% of persons over 65 years of age moved, according to AARP, compared to 17% of those under 65. It’s called “aging in place,” which is a standing trend that describes how older Americans prefer to stay in their homes and never move. They are attached to their dwelling, their neighborhoods, even to the corner deli (if it still exists). These adults have lived in their homes for the greater portion of their lives. They are the result of an enormous and long-lasting American socioeconomic trend that began after World War II. It was an age when Americans abandoned the inner city. By the hundreds of thousands per year, they embraced the tract home, the white picket fence, and quarter-acre of lawn or backyard far from the busting crowds of the city. And as they migrated to greener pastures, shopping malls, and garages, restaurants and other businesses followed, catering to this new suburban lifestyle. The good life in the suburbs became so much a part of our culture that it generated dozens of movies, television shows and novels celebrating this new America. The problem is that times change. Back in the day,...

Markets sell in May

  The old adage “sell in May and go away” seems to be working this year. In short order all three averages experienced a down draft over the past few days that amounted to about a 5% decline in total. Is there more to go on the downside? If I were a betting man, I would say the odds are in favor of more declines in the weeks ahead. I base that bet on the assumption that it will take at least until the end of June before we get anymore clarity on whether or not President Trump is willing and able to salvage a trade deal with China. By now, most readers are aware that there has been an abrupt change in expectations on whether or not the tariff trade wars will end anytime soon. Both countries have escalated their rhetoric and at the same time made clear that more tariffs are in the works unless a resolution can be successfully negotiated. There is a G-20 meeting coming up at the end of June. Reports are that President Trump and his Chinese counterpart, Xi Jinping, will meet at that time. Until then, investors can expect this war of words to continue. Traders will be cocked and ready to pull the trigger on every tweet, comment, or action by either side. I expect markets to respond (up or down) with a vengeance. At the same time, expect to read and hear how tariffs are bad for worldwide economic growth. The bears will begin warning that Trump’s actions towards China will cause the U.S. economy to tip into recession next...

Tariffs trash stocks

Volatility in the form of U.S. trade tariffs levied on China cut through investors’ complacency with a vengeance this week. It took less than three days to drop the markets by 3%. Is it over or do we have another 5% or so to endure? My bet is that it is over—for now. Sometime during the on-going trade negotiations occurring in Washington today and tomorrow, the thorny trade issues, (such as intellectual property (IP) protection for U.S. companies) will be kicked down the road. A compromise on other, easier issues will be announced as “on-going” (although not inked) and the Chinese delegation will fly home in an atmosphere of reconciliation. From the President’s perspective, China, after agreeing to a list of breakthroughs in the trade negotiations in Peking two weeks ago, “broke the deal.” Over a half dozen important “firsts” involving IP rights, as well as other structural rules and regulations that have hampered U.S. companies doing business in China, were first agreed to as of two weeks ago. A week later, half of them had been deleted from the formal draft agreement sent to Treasury Secretary Steven Mnuchin and Chief Trade Negotiator Robert Lighthizer. The move surprised the negotiators and infuriated the President. Sunday night, the President took to Twitter and threatened to raise U.S. tariffs on $200 billion of Chinese goods from 10% to 25%. The tariffs took effect Friday morning. The Chinese have responded by preparing their own additional tariffs on U.S. goods. As you might imagine, the Dow dropped 500 points or more on Monday, spiking higher on Tuesday, down again Thursday, and by Friday...

Stocks chalk up double-digit gains for the quarter

Friday marked the end of the quarter for stocks and investors worldwide celebrated by buying. It was a spectacular come back from last year’s fourth quarter. The question on your mind right now is will the run continue?   Yes, it likely will, but there may be a hiccup or two along the way. As you know, markets climb a wall of worry and this week we added another brick and mortar to that worry. This time the center of angst was an inversion of the yield curve that began last Friday. It is a possibility we have written about several times in the recent past. To keep it simple: a yield inversion in the bond market occurs whenever a shorter-term bond’s yield rises above that of a longer-term security. It is considered to be a harbinger of a future recession. Yields on the U.S. 10-year Treasury bond fell below the yield on 90-day Treasury bills. Historically, in a growing economy, one expects that the typical behavior of the yield curve is that longer-term interest rates have higher yields than shorter-term rates. So why the inversion? It’s all about risk. The U.S. 10-year government bond is considered one of the safest assets in the world. When uncertainty rises (as it did last week), investors flock to buy that bond. As the demand increases, the bond price rises, and its yield goes down. It went down so much that it inverted, and it remained that way throughout this week. So why all this economic worry? Topping the list is the slowing of the world’s economies, especially in Europe and China....

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...