a blog about investing
The African Swine Fever could cause prices in China to spike 70% or more this year. The highly infectious disease is spreading throughout Asia and could lead to a large increase in the price of pork here at home as well. read more…
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?
By Nate Tomkiewicz and Bill Schmick
It might surprise you to know that many retirement savers religiously contribute to their tax-deferred savings plans but have no idea what investments they own. Many plan representatives simply suggest that if you don’t know, just invest in a target date retirement fund. Is this a good idea? read more…
An initial public offering of a stock, called an IPO, can be either a sucker’s game or a chance for instant riches. Determining the outcome requires a great deal of work, knowledge, and luck. Most investors have none of the above when it comes to IPOs. read more…
The first print of the nation’s Gross Domestic Product for the first quarter of the year came in at 3.2%, versus 2.5% expected. That was a big beat and justifies the market’s gains over the last three months.
If you couple this with the quarter’s earnings results, which have been stronger than expected, you have the ingredients for a goldilocks economy and strong stock market.
“If the numbers were so good,” asked a client, “then why didn’t the markets react more positively to the news?
Well, one reason may be that the data provided a past view of the economy and financial market usually look at (and discount) future expectations. But the numbers do have some value. For example, it should put to rest the worries that a recession is just around the corner. Remember all the anxiety the inverted yield curve created just a few short weeks ago? As I advised at the time, ignore it, because even if it did predict a recession, it would be 1-2 years into the future.
Another issue is the historical levels that the markets have achieved this week. As I predicted, the S&P 500 Index hit and surpassed its all-time closing high. NASDAQ did as well. Usually, when milestones such as these are achieved, markets at least pause, if not pull back, before trying to achieve further gains.
So, while GDP was a blow out number, the markets had already discounted it. What then, would markets need to see in order to forge through the old highs?
A trade deal between the U.S. and China would help. That wish may come true sometime next month. An agreement would be good for both countries. The Chinese market has been one of the best performing markets in the world so far this year. Although expectations of a trade deal have fueled part of the Chinese equity rally, the government’s monetary and fiscal stimulus program (implemented this year to boost their slowing economy) is the real reason for those gains.
However, comments by some of China’s economic ministers have recently cast doubt on how much more stimulus investors can expect. As a result, stocks have tumbled by almost five percent over the last few days. This Chinese market action could give us a hint of what we can expect at some point in our own markets.
We are clearly in need of our own pullback, if only to provide a pause, a decline, which would push down prices, give investors a new reason to buy, and energize participants to assault new highs on all the averages in the months to come. It could be precipitated by anything—higher oil prices, a hawkish statement by the Fed, a wrinkle in the trade negotiations.
Exactly when this expected pullback will occur is anyone’s guess. Traders have been burnt over and over again trying to time this event. Every time they short the markets, however, buyers swoop in and push prices back up through the trendline.
As readers know, I have been watching various measures that might give me some advanced warning of a decline. While investor sentiment is clearly a cautionary sign, this week, the price action in the small cap and semiconductor sectors seem to be signaling some additional bearish sentiment.
Semiconductors have led the technology and the stock markets higher for well over two years. This week they made what is called an” island top,” a new blow-off high which, after a few days, reverses downward hard. That occurred on Friday after Intel, a semiconductor bell weather announced poor earnings results. It pulled the NASDAQ index down with it, despite positive results from Microsoft and Amazon.
Small cap stocks, which normally lead markets higher as well, have lagged the indices and, despite repeated attempts, still are nowhere near their old highs. That said, I still think the risk is being out of the market, rather than in it. Stay invested but be prepared for the pullback
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The stock market won’t quit. It has been on a tear since the day after Christmas. It feels like it wants to keep climbing. That would be a fairly simple feat at this point, since we are only a percent or so away from regaining those historical highs. What will happen once we get there.? read more…
Sometimes a tragedy can bring people together. In the case of the devastating fire that swept Paris’ Notre Dame Cathedral, the world wept. But even before the fire was completely extinguished, the business community was already making plans to rebuild the 850-year-old edifice. read more…
After a week of low volume consolidation, all three averages broke higher on Friday. The bulls are still in charge and seem determined to push stocks back to their all-time highs.
A trigger could be this year’s first quarter earnings season, which is upon us, some of the multi-center banks reported today. They did not disappoint, beating estimates handily and expectations are that most of the big banks will also beat earnings estimates. That won’t be too difficult to do given that earnings estimates have been down-graded not once, but twice, over the last three months.
Overall, the Street is expecting companies that comprise the S&P 500 Index to report a decline in earnings this quarter (anywhere between 2.5 to 4%). As such, it won’t take much financial engineering for companies to beat these low-ball estimates. With that same index less than 1% from its all-time highs, I would expect that next week we should see that level at least touched, if not broken on the upside.
Be advised that the S&P 500 Index has been up 10 out of the last 11 days. That is an unusual performance, but it doesn’t mean that string of gains needs to be broken any time soon. On the contrary, stocks could climb and climb until the last buyer has committed to the market before falling. It usually happens that way when the bull becomes a thundering herd.
But it is not earnings that are propelling the markets higher, it is the Fed’s easy-money policy stance. As long as that program remains, stock prices will be supported both here and abroad. Overseas, just about every central bank is singing off the same song sheet by lowering interest rates and dumping more money into their financial markets in an effort to prop up their slowing economies as best they can.
Here at home, President Trump has taken to the airways once again, demanding our own central bank cut interest rates, while providing more stimulus to the economy and financial markets. I don’t underestimate his power to bend the central bankers to his will. Trump has forced a new political era in this country where the rules and regulations of the past seem to be falling by the wayside on a daily basis.
I couldn’t help but notice last week, the April 8th piece in Barron’s, a well-regaraded business and investment newspaper. “Is the bull unstoppable?” the editorial team asked, in a huge front-page headline. They went on to write “And just the fact that we’re asking the question—on the cover of Barron’s, no less—could be a contrarian indicator signaling that the market has truly topped.”
They recognize that many times in the past, when a major media publication splashes a story like that on their cover page, a correction, or even a bear market, develops within a short period of time. If you couple this article with yet another increase in bullish sentiment of the Investors Intelligence Advisors Sentiment poll, which came in at 53.9% (the highest reading since last October and another contrarian indicator), readers should not be surprised if sometime soon we see a 4-5% hit to the averages.
So what? All it would mean for the markets is a much-needed correction before making even higher highs in the months to come. Of course, that forecast is largely dependent upon a trade deal with China by May. The negotiations, according to the White House, are progressing favorably.
The president, however, is still hedging his bets. The word “if” continues to come up whenever Trump is asked about the progress in the U.S./China trade deal. Is that simply a negotiating ploy, or is he truly worried about successfully concluding a deal?
Another potential positive for the markets and the economy might surface if the president can make a deal with the Democrats in furthering a U.S. infrastructure initiative. Speaker Nancy Pelosi will be meeting soon with the president on the subject. It is one of the few areas that both parties can legitimately find common ground. Whether they can get beyond the concept stage, however, remains to be seen. In the meantime, stay invested.
In this acrimonious political environment, little in the way of new legislation is expected to pass both chambers of Congress. One exception may be the Secure Act. Last Tuesday, a key House committee unanimously approved the bill, which would greatly enhance some private retirement plans.