So many discussions are happening behind the curtains in Washington. We are not privy to these discussions which creates difficulty in forecasting whether Congress will be able to move on major legislation such as income tax reform, infrastructure spending, and fixing the Affordable Care Act. But, there is a visible indicator available to give us a heads up on how well Congress is working with the Trump administration: the Nomination process (approval or disapproval of Trump nominees for the Cabinet).
As of today, the U.S. Senate has not voted against any Trump nominee. If this trend continues, this would be a sign of the Trump administration’s success in working with Congress to push forward its agenda. We will know soon because the Senate is expected to vote on Betsy DeVos Tuesday for Secretary of Education and Jeff Sessions for Attorney General. Both are controversial nominees and their nominee votes are uncertain. So, these two pending votes are a visible sign of the working relationship being shaped.
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.
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. BOTH THE HOUSE AND THE SENATE TOOK THE FIRST STEPS TO REPEAL THE ACT. NO REPLACEMENT HAS BEEN FINALIZED. CUMULATIVE PROGRESS TOWARD GOAL: 5%
Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE STARTED. CUMULATIVE PROGRESS TOWARD GOAL: 5%
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.
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). Favorable activity in the housing market continues to support growth in the level of spending. This category’s grade will improve if and when the Trump legislation is passed.
THE FED AND ITS POLICIES: This factor is rated C-. Last week, the FED stated again it would take a wait and see attitude toward the economic impact of legislation the Trump Administrations has proposed. Some experts believe the FED could raise rates at a faster pace if and when the Trump proposed legislation is passed into law. The FED is in the process of turning from a friend to the stock market to an anchor weighing down profitability, reducing valuations, and constraining growth.
BUSINESS PROFITABILITY: This factor’s grade is rated a B-(above average). Trump’s goal is a 4% growth rate for the U.S. economy. This will increase business profits significantly. During the next 3 weeks, U.S. corporations will be releasing their 4th Quarter earnings and will be forecasting the year ahead.
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.
Last week, U.S. Stocks increased. Foreign Stocks and Bonds were little changed. During the last 12 months, STOCKS outperformed BONDS.
Returns through 2-3-2017
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
0.0
0.0
1.2
2.4
2.2
4.3
US Stocks-Standard & Poor’s 500
.2
2.8
22.8
12.0
13.7
7.0
Foreign Stocks- MS EAFE Developed Countries
0.0
3.5
14.1
1.2
5.6
.9
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.
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:
“Understanding Schedule A and itemized deductions”
Laurie will take your calls on these topics 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 Dow Jones Industrial Average needed a strong finish on Friday to end the week right back where it had started—above 20,000.
Stocks began the week on the wrong foot, with the Dow dropping 229.65 points on Monday and Tuesday. Whether because the market was reacting to President Donald Trump’s travel ban, as some observers suggested, or earnings disasters from companies like United Parcel Service (ticker: UPS) and Under Armour (UAA), was immaterial—stocks looked headed for their first 1% weekly drop since early November.
And then they weren’t. Trump’s decision on Friday to roll back regulations on banks played a big role in getting the market’s juices flowing, as Goldman Sachs Group (GS) and JPMorgan Chase (JPM) soared 4.6% and 3.1%, respectively. The Dow finished up 186.55 points but close to flat on the week, something that “makes all the sense in the world,” says Greg Woodard, senior analyst at Manning & Napier. “The market is moving on every bit of political news.”
All told, the blue chips finished the week close to where they began, down 22.32 points, or 0.1%, at 20,071.46. The Nasdaq Composite both ticked up 0.1% to 5,666.77.
It wasn’t all due to Trump, of course. On Wednesday, the Federal Reserve elected not to raise interest rates. No surprise there, but it also didn’t signal whether or not it would be raising rates in March.
That decision looked sound after Friday’s release of the January payrolls report, which revealed a large increase in jobs but muted wage growth. That would seem to indicate little inflation pressure, something that could allow the Fed to remain on hold—and buy investors time to see how Trump’s policies play out. “It was very much a wait-and-see message,” says Jason Pride, director of research at Glenmede.
But what are we waiting for? Many investors appear to assume that the next market move will be higher and that they will be able to see the next downturn “coming a mile away,” says Adam Parker, chief U.S. equity strategist at Morgan Stanley. “We are worried there is a potential arrogance in adopting this view.”
He points out that just over a year ago, stocks were still trying to find a bottom following a plunge that left nearly everyone shell-shocked—and that the S&P 500 has gained 20% during the last 12 months. “How can anyone be more bullish now?” Parker asks.
