Heads Up!

It’s clear the Democrats and the Republicans will not work together during the current Administration.  Thus, the passage of any meaningful fiscal legislation depends upon the Republicans unifying into one effective voting-block. This has not yet occurred as evidenced by the growing log-jam in Washington.

We are watching closely for actions which will unleash the log-jam. We will report them to you if noted. Meanwhile, there has been no progress toward the legislative goals listed below.

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? It’s still 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. I 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:

  1. Tax cuts and tax reforms benefiting most individuals and businesses. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%

  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%


  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 40%

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 B+ (favorable).

THE FED AND ITS POLICIES: This factor is rated C- (Below average).

BUSINESS PROFITABILITY: This factor’s grade is A- (very favorable). We have just completed 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. These risks deserve our ongoing attention.

The Numbers

Last week, U.S. Stocks, Foreign Stocks and Bonds all decreased. During the last 12 months, STOCKS outperformed BONDS.

Returns through 6-9-2017







Bonds- BarCap Aggregate Index







US Stocks-Standard & Poor’s 500







Foreign Stocks- MS EAFE Developed Countries







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:

“Men and Women and the interplay of their financial decisions”

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.

The Markets This Week

Most of us have been asked at some point if we would jump off a bridge if all our friends did. Last week, the market demonstrated what happens when investors answer “yes.”

Stocks were quietly heading toward new highs Friday morning when Apple (ticker: AAPL), Alphabet (GOOGL), Facebook (FB), and other tech names suddenly fell. By the close, each had lost more than 3%, while the tech-heavy Nasdaq Co mposite had dropped 113.85 points, or 1.8%, to 6207.92. Stranger still, the S&P 500 declined by less than 0.1%, to 2431.77, while the Dow Jones Industrial Average rose 89.44 points, or 0.4%, to 21,271.97, a new all-time high. (The three benchmarks finished the week down 1.6%, down 0.3%, and up 0.3%, respectively.)

What sparked the tech wreck? Some market participants pointed to a Goldman Sachs report that circulated Friday highlighting an increase in “mean-reversion risk” for FAAMG stocks—a quintet of highflying names including Facebook, Amazon.com (AMZN), Apple, Microsoft (MSFT), and Google parent Alphabet. Then there was a report from noted short seller Andrew Left, of Citron Research, targeting chip maker Nvidia (NVDA), whose shares have surged 50% this year. Friday, they fell 6.5%, to $149.60.

More likely, the problem was love. Tech stocks have been the object of investors’ ardent affection for much of this year, to the exclusion of much else, and too much love can be a dangerous thing. At the end of May, three of the fourth most “crowded” large-cap industry groups hailed from the information-technology sector, according to Credit Suisse strategist Lori Calvasina, who tracks sell-side stock ratings, stocks overweighted in mutual funds, and hedge fund net exposure to find industries that appear over-owned. While tech stocks have attracted an abundance of buyers for a while, which has pushed prices up, Calvasina says she has noticed a change in the tone of conversations around the group. “People have been getting more concerned” about the stocks’ popularity and valuations, she says.

Calvasina downplays the risk, however, that large-cap tech prices will reach bubble proportions, as happened in the year leading up to the 2000 dot-com crash. The reason: Tech is nowhere near as expensive as it was at the 2000 peak. In fact, it isn’t even as expensive as the health-care sector was in 2015, when she lowered her health-care rating to Sell from Neutral. “You don’t have a valuation problem,” she says of tech.

Even as investors dumped the FAAMGs and their cousins, they were snapping up financial and energy shares, which helps to explain the Dow’s and S&P’s seeming obliviousness to the carnage next door. The S&P 500 Financial Index rose 1.9%, while the S&P 500 Energy Sector climbed 2.5%. Financials and energy have gone begging for love this year; they have been two of the worst performers. “A lot of stocks were being looked over,” says Rhino Trading Partners Chief Strategist Michael Block. “You see how everyone is positioned and go the other way.”

The banks also benefited, following former FBI Director James Comey’s testimony on Thursday, from a sense that President Donald Trump’s policy goals might not be dead on arrival after all, a point driven home when the House of Representatives passed a bill that would roll back many of the financial regulations passed in the wake of the financial crisis, says Jason Ware, chief investment officer at Albion Financial Group. He says that banks would also benefit if longer-term bond yields start to rise relative to short-term rates. This is known as a steepening yield curve.

Whether that happens could have much to do with the Federal Reserve’s decision on interest rates at its monetary-policy meeting this week. Financial stocks are among the bigger beneficiaries of higher interest rates, especially when longer-term Treasury yields rise with them. The Fed is widely expected to raise rates another quarter of a percentage point on Wednesday. If Fed chief Janet Yellen can pull off a hike and convince markets that the U.S. economy is still growing steadily, Friday’s tech wreck could be just a hiccup on the way to higher stock markets.

(Source: Barrons Online)