Category Archives: Markets & Investing

Earnings Won’t Wait for Trump

 

Next week at this time, Donald J, Trump will have been inaugurated as the 45th President of the United States. But the markets aren’t waiting.

The so-called Trump rally has stalled, as the Dow Jones Industrial Average, which seemed poised to top 20,000, now finds it hard to surmount the 19,000 barrier, let alone the magic round milestone number.

The Standard & Poor’s 500 index is holding up a little better, around 2,273, while the Nasdaq Composite Index, at about 5,573, is just short of its all-time high as technology, which lagged in the Trump rally, has quietly gained ground.

I think that tells us something particularly important about the market as earnings season begins.

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Can Trump Take the Economy Higher?

 

Except for the fourth-quarter GDP report, which won’t be finalized until the end of March, Friday’s jobs report closed the books on the Obama economy.

The U.S. economy added 156,000 net new jobs in December, the Bureau of Labor Statistics reported. That was less than forecasters projected, but it marked the 75th consecutive month of job growth, the longest on record.

It wasn’t exactly the most robust growth—since October 2010, job growth has averaged about 200,000 a month, and that pace slowed last year to 180,000—but it’s been steady. Since early 2010, businesses have added 15.8 million jobs, including 2.2 million last year and 2.9 million in 2015.

On the other hand, workforce participation remains near historic lows, for many reasons I don’t have the space to go into here. And voluntary part-time workers have picked up in the past couple of months and are up 600,000 for the year, although that increase exactly cancels out the decrease in the number of people who work part-time but want to work full time.

But the really good news, which is most likely to impact the economy, the Federal Reserve, and stock and bond markets, occurred on the wage front.

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Closing in on Dow 20,000

It’s six weeks and counting for the Trump rally, and though things slowed a bit this week, there’s no sign it’s winding down.

On Friday the Dow Jones Industrial Average closed at 19,844. It marked the sixth consecutive weekly advance and puts the Dow less than 1% from the “magic” 20,000 level. Who would have thought that was possible during the financial crisis, when the Dow bottomed below 6,600 and some gurus and pundits thought it had nowhere to go but down?

Meanwhile the Standard & Poor’s 500 index, the Nasdaq Composite index, and  the Russell 2000 small-cap index were all down on the week after having hit all-time highs the previous week. China’s seizure of a U.S. underwater drone in the South China Sea rattled investors in the afternoon.

That aside, investors appear convinced President-Elect Donald Trump’s plans to cut taxes on businesses and individuals (especially wealthy individuals), slash regulations, and spend a boatload of money on infrastructure will spur growth in the economy and corporate profits.

Will it happen or is the market getting ahead of itself?

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Stocks Are Off to the Races

 

Finally! This is what a real bull market feels like.

Stocks have been hitting new highs on most days. On Wednesday the Dow Jones Industrial Average shot up almost 300 points. On Thursday, the Dow, the Standard & Poor’s 500 index, the Nasdaq Composite index, the Russell 2000 small-cap index, and the Dow Jones Transportation Average all hit record highs.  The Dow is within 1.5% of the magic number of 20,000.

Whether you call it the post-election rally or the Trump rally, it’s happening. Just as consumers are becoming more optimistic about the economy (consumer sentiment readings reflect that, and the National Retail Federation expects shoppers to spend about 4% more on gifts this holiday season), investors have become more bullish on stocks as well.

The flip side of bullishness on stocks is bearishness on bonds, and the ten-year Treasury note sold off again on Friday. Its yield is now 2.47%, more than a full percentage point above its all-time low of 1.37% in July.  That reflects a huge drop in bond prices.

Bond investors clearly are looking for faster economic growth and higher rates ahead, so they’re selling bonds and buying stocks.

So, is this a relief rally now that the election is over? Or is it a Trump rally? And what’s next?

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The Economy Is the Real Deal

 

4.6% unemployment? Who woulda thunk it?

Sorry, folks, the old New Yawk accent slips in from time to time. But Friday’s November jobs report capped a series of strong data releases over the past week that show the economy is doing well and on the way to doing even better.

On Friday morning, the Labor Department reported the U.S. economy added 178,000 net new jobs last month (156,000 of them were in the private sector), which was about in line with economists’ projections and well ahead of October’s revised 142,000 new jobs. In 2016, the economy has been creating on average 180,000 jobs a month, down roughly 20% from last year but still pretty good.

The big headline news, though, was the 4.6% unemployment rate, lowest since August 2007. And the rate for adult men fell to 4.3%. Some of the sharp decline in unemployment is because discouraged workers have stopped looking for jobs, and as the naysayers are quick to point out, workforce participation remains low.

Which is true, but there are several reasons for it I don’t have the space  to explore more deeply here. Suffice to say, the jobs report shows an economy where the glass in three-quarters full—and getting even more full.

Here’s more proof of that:

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Subscriber Alert: Big Changes to Our Investing Plans

 

Last  week, all four major indices—the Dow Jones Industrial Average, the Standard & Poor’s 500 index, the Nasdaq Composite index and the Russell 2000—hit record highs on the same day for the first time since December 31, 1999.
We all know what happened after that. But I think this post-election rally may reflect a fundamental realignment rather than an impending market peak.

We’ve seen gains across a broad spectrum of stocks, and the particular power of the financial stocks, which are still way below their 2007 bubble peak, is especially notable. Meanwhile, the dollar is hitting 13-year highs and bonds have been hit hard.

As I wrote in MarketWatch, Wall Street is looking for the incoming Trump Administration and Republican Congress to cut taxes on businesses and individuals, repatriate cash companies are storing abroad, and even approve the kind of massive infrastructure spending they resisted under President Obama.

Keynesian infrastructure building may be a tough sell in Congress, but the tax cuts alone, along with the evisceration of Dodd-Frank and removal of restrictions to drilling imposed by President Obama, would probably be a boon to the markets. It would make higher inflation and more interest rate hikes more likely and the threat of recession –at least in the U.S.—more remote.

The only real threat to the markets now, in my view, is the situation in Europe where Italian banks remain shaky and France could land the third blow for populism (after Brexit and Donald Trump) if the National Front’s Marine Le Pen is elected president next May, leading to the unraveling of the EU and the euro. That only strengthens the case for U.S. stocks and certain U.S. bonds.

So, we have made the following changes to most of the GoldenEgg Investing® retirement investing plans:

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Are We Really Back to Normal?

 

Well, that didn’t take long.

In the weeks before the election, Wall Street was shaking in its boots about “Mr. Uncertainty” Donald Trump becoming president. Not that they gave it much of a chance; trading sites and betting markets overwhelmingly favored Hillary Clinton to win.

Wall Street regarded a Trump victory as the ultimate “black swan”—an event so rare and unlikely that it would throw markets for a loop. Even a whiff of that happening sent stocks lower, while when public opinion polls showed Hillary pulling away, markets rallied.

So, what happened when Trump won last Wednesday morning? Stocks began a big rally that has taken the Dow Jones Industrial Average up to record levels and boosted the Standard & Poor’s 500 index near all-time highs, where both now hover.

The dollar has hit a 14-year high, while the CBOE Volatility Index (the VIX) at first shot up into the 20s in the days before the vote. But now it has settled back to just above 13, which suggests calm, if not complacency.

So, can we sound the “all-clear” signal yet?

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My Early Take on the Trump Market

 

Before the election, Wall Street viewed the election of Donald J. Trump as president—which they considered only a remote possibility–as a potential black swan disaster. But in the first days after Tuesday’s electoral earthquake, it’s looking like a boon.

After plunging 800 points in overnight futures markets, the Dow Jones Industrial Average opened down only 15 points as hedge funds jumped in.  One of them was prominent Trump supporter Carl Icahn, who claims he bought $1 billion worth of stock at the bottom.

The Dow closed up 272 points on gigantic volume. It tacked on another 218 points Thursday for a two-day gain of nearly 500 points, and opened Friday at an all-time high. It’s up 5% on the week.

The Standard & Poor’s 500 index also rallied on heavy volume, but not as much as the Dow; it’s up only about 1% since Trump’s victory.

But the Nasdaq Composite index is lagging. Having sold off big overnight Tuesday, it rallied about 1% on Wednesday, only to plunge again Thursday. It’s now barely higher than where it closed on Election Day.

If it continues, this divergence between the once-high-flying Nasdaq and the Dow and the S&P tells us a lot about what the market could do during a Trump administration.

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If Trump Wins, We’ve Got You Covered

 

When Democratic presidential candidate Hillary Clinton was soaring in the polls a month ago, stocks swooned as the big money feared a Democratic House and Senate—led by Elizabeth Warren and Bernie Sanders– would ride roughshod over Wall Street.

Now Republican candidate Donald Trump has gained ground following FBI Director James Comey’s terse note to lawmakers that the bureau was reopening its investigation into the emails Secretary of State Clinton sent from her private server.  That’s caused stocks to slide, too.

So now, the biggest risk to investors appears to be not a Democratic wave, but a narrow Trump victory in the Electoral College.  Data wiz Nate Silver gives that a definitely nontrivial more than one-in-three chance; online betting sites give him slightly worse odds of winning.

Clinton’s support appears to have stabilized a bit in the last couple of days, but the real prospects of a Trump presidency have shaken Wall Street to the core.

How bad could it be, and how much could it hurt you?

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Strong GDP Is Good for Hillary and Janet

 

The Commerce Department’s first report on gross domestic product growth for the third quarter blew past all estimates, advancing 2.9% over 2015, its strongest gain in two years

Exports jumped 10%, their biggest rise since 2013, powered by a surge in soybean sales overseas. U.S. consumer spending was solid, although its advance slowed a bit.

And though growth in the first half was a measly 1.1% and GDP has risen by an average 3.2% since 1948, making this recovery decidedly subpar, supporters of Democratic presidential nominee Hillary Clinton will hail this as good news.

Whether explicitly or not, she’s running on President Obama’s economic legacy, and her opponent, Republican candidate Donald Trump, has described the country as a hellhole with an economy that’s a basket case. Clearly that’s not in these numbers.

I’ve written here that Wall Street and many investors think a Clinton victory would be good for markets. And though the gap between them has tightened slightly in the national polls, Clinton is still comfortably ahead in the states whose electoral votes will pick the winner. Good economic news (she’s got her fingers and toes crossed over next Friday’s jobs report, too) will help her close the deal.

It also helps another prominent glass-ceiling breaker, Federal Reserve Chair Janet Yellen, who works on Constitution Avenue, a short walk from the White House. And I’d argue it’s good for stocks, too. Why?

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