Full Speed Ahead for Stocks?


The great market trifecta ended Thursday with slight losses that continued Friday.

On Wednesday, the Dow Jones Industrial Average, Standard & Poor’s 500 index, and Nasdaq Composite index hit record highs for the fifth consecutive day—the first time that’s happened since 1992.

But on Thursday, only the Dow continued its streak. The S&P and Nasdaq were off by less than 1/10th of one percent. (Only the Nasdaq rose Friday.) All three of them, and the Russell 2000 small-cap index, are still near all-time closing highs.

The complacency I wrote about last week has abated a bit as the CBOE S&P 500 Volatility Index—the VIX—rose about  10% from last Friday’s ten-year low. But it still is below 12. And three leading indicators of institutional sentiment—Market Vane, the Consensus Bullish Sentiment index, and Investors Intelligence—are all near their highest readings for this bull market.

So, it’s a good time to sell, right?


Complacency, Thy Name Is Trump


When you’re President Donald Trump and you snap your fingers, the courts and the media don’t stand at attention.

But when you tell Wall Street to jump, the answer always is: “How high”?

On Thursday, the U.S. Court of Appeals for the Ninth Circuit upheld a lower court’s stay on the administration’s controversial travel ban on people from seven mostly Muslim countries that have a history of sponsoring or spawning terrorism.  The legal fight may go to the U.S. Supreme Court.

And despite chief White House strategist Stephen K. Bannon’s admonition to the media to “keep its mouth shut and just listen for a while,” news organizations like The Washington Post and The New York Times have published story after story about internal battles in the administration, extensive leaks, and apparent conflicts of interest in the Trump family.

But when the president floated the vague notion that within the next few weeks, he would unveil a “phenomenal” tax plan,  yet provided no details, all three major market indexes achieved new all-time highs.

Like Trump supporters during the campaign, Wall Street has focused on all the positive things the administration may do (tax cuts, deregulation, infrastructure building) while ignoring everything else (possible tariffs, trade wars, etc.)

Is it missing the forest for the trees?


Two Boosts for the Trump Market


The January jobs report had good news for the Trump Administration and the market, though its surveys were taken before Inauguration Day.

The U.S. economy added 227,000 new jobs in January, the best monthly jobs report since last June. Unemployment ticked up to 4.8%, but the labor force participation rate also rose slightly as more people looked for work.

The one down side was that hourly earnings rose by a mere 0.1% in January and only 2.5% during the past 12 months. That’s more than the 2% annual growth they’ve shown over the last few years but weaker than the 2.9% trend that had the Federal Open Market Committee (FOMC) on track to raise the federal funds rate three times this year.

The FOMC held its ground at this week’s meeting and the low wage increases and weak GDP growth of 1.6% in 2016 have Wall Street believing the Fed might raise rates even more slowly.

That was one reason the Dow Jones Industrial Average was up by about 170 points Friday afternoon, while the Standard & Poor’s 500 index was within a few points of the 2,300 mark and its all-time high.

But there was another reason stocks closed the week with a bang.

Continue reading


It’s Trump’s Market Now


At around noon Friday, Donald J. Trump took the oath of office and became the 45th President of the United States. Despite much anxiety among people who didn’t vote for him, the world didn’t end and the stock market didn’t crash.

Yet those who expected the new president to reach out to his defeated opponents with conciliatory words and olive branches were disappointed.

President Trump’s inaugural address was bellicose and unyielding, explicitly advocating “protection” and “America first,” in a call to arms against Democrats and Washington Republicans alike. It echoed the dark vision of a country under siege (“American carnage,” he called it) that marked his acceptance speech at the Republican National Convention in Cleveland.

Perhaps reflecting that, stocks sold off from their highs earlier in the day. But who really knows why the stock market moves on any given day? What we do know is that from this day on, President Trump “owns” the economy and the stock market and, fairly or not, his popularity will ride on it.

So, what are his chances?

Continue reading


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.

Continue reading


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.

Continue reading


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?

Continue reading


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?

Continue reading


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:

Continue reading