On one hand, stock prices are being supported by strong business profits and consumer spending. On the other hand, stock prices are being hindered by Congress’s lack of progress on legislation which the U.S. stock market has speculated on being enacted. It is difficult to forecast future stock prices over short periods of time. However, many experts suspect stock prices may have a tough summer because the earnings reporting season is almost over; and, on the other hand Congress appears to be unable to enact fiscal legislation anytime soon.
Update – Washington
The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration. What will happen next? To Be Determined!
The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. We consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.
Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:
- Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
- Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
- Affordable Care Act amendment, reform or reorganization. ON ITS SECOND ATTEMPT, THE HOUSE OF REPRESENTATIVES PASSED LEGISLATION TO REVISE IT. CUMULATIVE PROGRESS TOWARD THIS GOAL IS 20%.
- Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 30%
As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.
We will continue to report in future issues on the progress on each initiative.
The “Heat Map”
Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: This grade is A- (very favorable).
THE FED AND ITS POLICIES: This factor is rated C- (Below average).
BUSINESS PROFITABILITY: This factor’s grade is upgraded to A- (very favorable). We are enjoying one of the best earnings reporting seasons in decades.
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5, an increase from 3 due to North Korea’s missile launch. These risks deserve our ongoing attention.
The Numbers
Last week, Foreign Stocks and Bonds increased but U.S. Stocks declined. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 5-12-2017 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.2 |
1.6 |
.6 |
2.6 |
2.2 |
4.3 |
|
US Stocks-Standard & Poor’s 500 |
-.3 |
7.6 |
18.3 |
10.3 |
14.5 |
7.0 |
|
Foreign Stocks- MS EAFE Developed Countries |
.3 |
12.3 |
16.6 |
1.5 |
8.2 |
1.0 |
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
“Your Financial Choices”
The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week Laurie will discuss:
Selling a principal residence and other mixed use real estate property?
Laurie will take your calls on this topic and other inquiries this week. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area– or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
Motivational Quote of the Week
“Wake up with determination. Go to bed with satisfaction.” – Unknown
The Markets This Week
If a scandal breaks out in Washington, and the market doesn’t react, did it really happen?
The scandal, of course, was the abrupt firing of FBI Director James Comey last week, which provoked an outcry from Democrats—and even a few Republicans—but was dismissed by President Donald Trump as the removal of a “showboat.” The headlines continued throughout the week—some even drew comparisons to Richard Nixon—but stocks couldn’t be bothered to respond one way or the other. “The market is telling you it’s background noise,” says TD Ameritrade strategist JJ Kinahan.
It certainly was another yawner despite the pyrotechnics in Washington. The Dow Jones Industrial Average fell 110.33 points, or 0.5%, to 20,896.61 last week, while the Standard & Poor’s 500 index declined to 2390.90. The Nasdaq Composite rose 0.3% to 6121.23. The CBOE Volatility Index, or VIX, closed at 10.41 after falling into the single digits earlier in the week.
It wasn’t all quiet. Retailers such as Macy’s (ticker: M), Nordstrom (JWN), and J.C. Penney (JCP) suffered double-digit losses after releasing earnings, but warns Daniel Chung, CEO of asset manager Alger, don’t blame their disappointing sales on consumer weakness. “It’s the internet, not [a lack of] consumer strength,” he says. As if to serve as confirmation, retail sales grew at a 0.4% clip last month, weaker than the 0.6% that economists had predicted, but not low enough to worry.
(Source: Barrons Online)
Heads Up!
NOTE: This article is repeated from 2-13-2017 to emphasize the important shift of stock market sentiment.
Why are we so closely monitoring political moves in Washington? Because staff serving on Congressional Committees, by making leaks about legislation in process, can move markets more than the FED.
The markets right now are incredibly dependent upon fiscal policy (fiscal policy is the means by which a government adjusts its spending levels and tax rates to influence the U.S. economy).
Fiscal policy is the brother strategy to monetary policy through which the Federal Reserve Bank (the FED) adjusts the U.S. money supply to influence the U.S. economy. For many years, the FED was the only game in town. Now, many believe the FED’s ability to influence the economy has withered. Maybe, just in time, the government is able to rev up fiscal policy.
Update – Washington
The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration. What will happen next? TBD.
The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. We consider the success or failure of the 4 initiatives to be “leading” indicators for the “Heat Map.”
Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:
- Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
- Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
- Affordable Care Act amendment, reform or reorganization. THE HOUSE OF REPRESENTATIVES FAILED TO PASS LEGISLATION TO REVISE IT. NO TIMETABLE HAS BEEN PRESENTED TO RE-INTRODUCE THIS LEGISLATION SO THE CUMULATIVE PROGRESS TOWARD THIS GOAL IS 0%.
- Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 20%
As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.
We will continue to report in future issues on the progress on each initiative.
The “Heat Map”
Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: This grade is A- (very favorable).
THE FED AND ITS POLICIES: This factor is rated C- (Below average).
BUSINESS PROFITABILITY: This factor’s grade is B (above average). We are entering a period of what is supposed to be a good first-quarter earnings season, which begins in earnest this week. And those optimistic forecasts since the start of first-quarter earnings season have allowed analysts to raise their full-year expectations, something that hasn’t happened this early in the year since 2012. This is an incredible earnings season..
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 3. These risks deserve our ongoing attention.