Imagine you were and I were employed as part of an executive team at a major corporation – and we reported the current state of affairs of our corporation to the Board of Directors the day before the entire executive team left for vacation for a month. Can you imagine the consequence if we said: Sorry, but we were not able to complete the budget for your review. Sorry, we did not have time to reach out to our bankers to renew our line of credit, and we will run out of money next month. Sorry, we were not able to fix the company’s healthcare plan, which will soon spiral out of control. And, sorry, we did not get to figure out or tax situation either. But, we are all going on vacation for the entire month of August. Yes! We would all be fired.
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!
If it wasn’t clear that the world’s central banks had begun to shift away from easy-money policy, last week should leave little doubt. This discussion came a week after Fed Chief Janet Yellen openly questioned whether asset valuations have gotten too high for their own good. The S&P 500 now trades at 17.6 times 12-month forward earnings, and while we can debate how much easy money has helped inflate those prices, there’s little doubt that it’s played a role.
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.
American Airlines is the largest airline in the world, serving nearly 200 million passengers a year. Soon, as those passengers settle into their seats and pick up their in-flight magazines, they’ll be reading all about the Lehigh Valley.
The region will be the subject of a 24-page supplement in next month’s issue of American Way, the most-read in-flight magazine in the world, highlighting the Lehigh Valley for millions of readers on an international platform bestowed on only a select few regions each year.
“The Lehigh Valley is in the midst of an economic renaissance,” said Carsten Morgan, Vice President of Special Projects for the London-based Ink Global, which publishes the magazine.
“The commercial landscape of today’s and tomorrow’s economy is vastly different than the stigmas and misnomers associated with the community,” Morgan said. “This is a story that hasn’t been presented to a global audience on this scale.”
The supplement feature, called Spotlight Lehigh Valley, is an economic development series that takes a detailed look at what makes a certain region a great place to invest, visit, or relocate, with a particular focus on global economic impact, business diversity, and innovation.
Source: Lehigh Valley Economic Development (READ MORE at LehighValley.org)
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.
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.
FAR BE IT FOR me to be a party pooper.
On March 9, this bull market, the second longest in history, became eight years old, but if we have to play class monitor, so be it.
Corporate tax relief, infrastructure spending, Affordable Care Act change, and a more lenient regulatory approach are the four legs that support the market’s pro-growth Trump jump. Tax cuts are arguably the most important. It’s a discrete item markets love to latch on to. And, that is the reason we have taken the job as class monitor – see Update-Washington below for our progress report – zilch!
And, here are some sobering points to keep in mind:
- The rally impetus from the so-called Trump trade seems depleted. There’s a bit of worry over whether those policies will get implemented.
- There also is concern that the U.S. economy isn’t expanding as strongly as hoped. The recent unexpected rally in Treasury bonds has stock-market watchers worried growth is slowing.
- Two weeks ago, the U.S. launched missiles at a Syrian airfield, and American relations with both Russia and North Korea are tense.
- French elections begin April 23; markets fear a victory by nationalist candidate Marine Le Pen.
- April 28 offers an expiration of Congress’ continuing-resolution budget bill. If there is no agreement on the measure by then, the government could shut down the next day.
- With a market price/earnings ratio of 18 times, stocks are not cheap, though the 2018 price/earnings is a more reasonable 16 times—assuming that the Standard & Poor’s 500 index earnings per share grow 12% in 2018, as analysts expect.
Can we push all the political “noise” aside and finally talk about earnings? It’s that time again when the stock market will focus on corporations reporting their sales and profits – called “earnings season,” one of the underpinnings of stock market values and the entire economic picture. Hence, it’s the reason why Business Profitability is one of the elements of the Heat Map (below).
According to a highly respected earnings forecaster, FactSet, earnings for the S&P 500 companies are expected to grow 9.1% for the period ending March 31 compared to one year earlier. If true, this would mark the highest growth quarter since Q4 of 2011. A strong showing like this may offset some or all of the negative effect of no progress in Washington DC on fiscal policy changes (see Update-Washington for additional information).
Tamarac is honored to receive the 2017 Family Wealth Report Award for Best Portfolio Management Application for our Advisor View™ software. And, just last winter, Advisor Rebalancing® received the best-in-class award from WealthMangement.com.
Valley National Financial Advisors uses this software to help manage our relationship with you. We really look at Tamarac as a strategic partner to our business. We think of Tamarac as thought leaders because they are always looking for innovative products and solutions to help us better service clients. That’s the reason we chose them a couple years ago after a long a due diligence project.
Tamarac supplies the e-Vault client portal for your use. During 2017, Tamarac and Valley National Financial Advisors will be rolling out important and useful advancements in the client portal. Stay tuned for more information.