Many investors use the Dow Jones Industrial Average (“DJIA”) as a barometer of the U.S. Stock market. The DJIA stood at 18,000 the day before the Presidential election on November 8th. Today, it has jumped to within a few points of 22,000. This increase equals 4,000 Dow points, or more than 22%. WOW!
Daily Archives: August 2, 2017
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. 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. THE SENATE HAS FAILED TO BRING THE BILL HAS FAILED TO PASS THE HOUSE’S VERSION OR ANY OTHER. 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: 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). In the minutes from the June Federal Open Market Committee meeting, the Federal Reserve members expressed their desire to begin shrinking its balance sheet before the end of the year, while the European Central Bank’s minutes contained discussions of ending its pledge to buy more bonds if the economy weakened. Rate hikes, meanwhile, are suddenly on the table in countries besides the U.S.
BUSINESS PROFITABILITY: This factor’s grade is A- (very favorable). Of the S&P-500 companies which have reported second-quarter earnings so far, 74% have topped analyst expectations, according to Thomson Reuters I/B/E/S, above the four-quarter average of 71%. Sales have been nearly as strong, as 72% have topped expectations, well above the four-quarter average of 56%. All in all, second-quarter earnings are expected to grow by nearly 10%.
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 6. These risks deserve our ongoing attention.
The Numbers
Last week, Foreign Stocks increased, Bonds decreased and U.S. stocks were little changed. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 7-28-2017 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
-.2 |
2.7 |
-.5 |
2.7 |
2.0 |
4.4 |
|
US Stocks-Standard & Poor’s 500 |
.0 |
11.6 |
16.0 |
10.8 |
14.8 |
7.7 |
|
Foreign Stocks- MS EAFE Developed Countries |
.5 |
17.1 |
17.8 |
2.8 |
9.1 |
1.5 |
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: “Financial terms defined – advisors, accounts, trusts”
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” – Natalie’s Health
The Markets This Week
Newton’s third law of physics states that for every action there is an equal and opposite reaction—but sometimes that can lead to no action at all.
Take the so-called FANG stocks. Three of the four reported earnings last week, with Facebook (ticker: FB) gaining 4.9% last week, Amazon.com (AMZN) slipping 0.6%, and Google parent Alphabet (GOOGL) dropping 3.6%. In the end, they netted out to a 0.2% decline to 6374.68 for the Nasdaq Composite, and virtually no change for the Standard & Poor’s 500 index, which closed the week up 0.4 point at 2472.10.
The Dow Jones Industrial Average was the exception that proved the rule. With none of the FANGs among its 30 component stocks, the blue-chip benchmark rode huge gains in Boeing (BA) and Caterpillar (CAT) to a 250.24 point, or 1.2%, gain to 21,830.31, an all-time high.
Still, it’s hard to ignore just how on edge the market seems to be, as every drop, no matter how small, is analyzed for signs that it’s the one that marks the end of the long bull market. And every gain is an opportunity for handwringing. The muted CBOE Volatility Index, or VIX, which traded as ridiculously low as 8.8 last week, has only added to the consternation, prompting talk that a tumble is looming.
“There’s a sense that many things are coming together that make you feel like you’re headed for a correction,” says Jim Paulsen, chief investment strategist at the Leuthold Group. “There’s so much of that right now, that it almost would surprise me if it happens.”
And for good reason. The S&P 500 has suffered two 15% drops since the bull market got going in earnest, says Tony Dwyer, chief market strategist at Canaccord Genuity. The first occurred in 2011, when the European Central Bank raised interest rates as it wrestled with its own financial crisis and the global economy struggled to grow again. The second occurred at the end of 2015 and into 2016, when China’s currency depreciation and the collapse in oil prices caused markets to tumble. Dwyer sees few similarities today. The global economy continues to recover, and U.S. gross domestic product grew at a 2.6% clip during the second quarter; earnings are growing at a 10%-plus clip; and a weak dollar should provide a boost for U.S. multinationals and commodity prices. “This will end badly at some point,” Dwyer says. “But the underpinnings for a major drop are just not there right now.”
Which doesn’t mean there won’t be sudden bouts of volatility. Two events in particular have the potential to shake things up. On Friday, we’ll get the June payroll data, which could provide evidence of whether the Federal Reserve, which left interest rates unchanged last week, is ahead of or behind the curve. And then there’s Apple (APPL), which is scheduled to release earnings on Tuesday—and this time the Dow won’t be above the fray. A surprise from either could upend stocks.
Just don’t bet on it. “The market appears bulletproof,” says Ian Winer, head of equities at Wedbush Securities.
Enjoy it while it lasts.
(Source: Barrons Online)