Monthly Archives: April 2017

Heads Up!

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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.

Update – Washington

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

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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. It’s a period in which earnings might have grown by a double-digit percentage, due to a big recovery in energy-sector profit growth. But much of the gain is already discounted by elevated stock prices.

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.

The Numbers

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

Returns through 4-14-2017

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

 .6

1.8

1.1

2.7

2.4

4.4

US Stocks-Standard & Poor’s 500

-1.2

4.6

14.2

11.0

13.6

7.1

Foreign Stocks- MS EAFE Developed Countries

-.1

6.4

8.6

.6

6.6

.7

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”

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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 be on vacation so a pre-recorded show will air.

No calls will be taken this week.  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

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Stocks fell 1% last week in quiet trading, with many market participants out for religious observances. Worries about the war in Syria, North Korean saber-rattling, and the coming French elections had investors reining in riskier positions and heading for safe havens.

Real estate, utilities, and consumer-staples stocks were the only sectors that rose last week. Financials—and banks in particular—fell, despite strong earnings reports from the industry’s big kahunas.

Tech stocks, which are out of favor lately, fell 1.4%. The Standard & Poor’s 500 Information Technology Index has finished lower 10 days in a row, only the fourth such streak since 1989, when daily data on the sector was first posted, according to Bespoke Investment Group. Tech stocks rallied in the three months following the three prior pullbacks, all deeper, BIG wrote in a recent report. Tech is down only 2% from its recent highs, and hasn’t yet surpassed the peak set in 2000 during the dot-com boom.

The Dow Jones Industrial Average declined 203 points, or 1%, to 20,453.25 over the four-day span. (The market was closed Friday in observance of Good Friday.) The Nasdaq Composite dropped 1.2%, to 5,805.15.  Steve Sosnick, senior trader at broker-dealer Timber Hill, notes that much of the damage came in the afternoon Thursday, as traders squared positions ahead of the three-day weekend. “Some people didn’t want to hold positions ahead of a long weekend,” given geopolitical concerns, he says.

(Source: Barrons Online)

Heads Up!

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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).

Update – Washington

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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:

  1. Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  1. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  1. 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%.
  1. 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”

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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). See “Heads Up” section for more information.

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.