Markets Charge To New Highs As Global Economy Expands

Published November 10, 2017

William RutherfordWith the global economy further recovering from the financial crisis of 2007-2009, equity indices around the globe pushed higher. In October, usually a bad month for markets, the S&P rose 2.2 percent as a result of strong earnings, and anticipation of tax reform. Consumer confidence, as measured by the Conference Board, hit a very high 129.9.

Personal spending rose 1 percent in September – the largest monthly gain since August 2009. Retail sales soared, rising 1.6 percent in September. The spending was partially a result of the need to replace cars and trucks damaged by hurricanes and floods. Manufacturing and service industries expanded at a robust pace. The purchasing manager index reached a 15-year peak and the service sector index reached a 12-year high. Orders for durable goods, such as defense spending, rose 2.2 percent, and it appears that growth is on track at a 3 percent clip.

Globally, the economy continued its expansion.

The Federal Reserve left U.S. interest rates unchanged, but a quarter-point increase is surely on deck for December. Meanwhile, the European Central Bank left its short-term interest rate at zero, but indicated it will wind down its […]

In The Face Of Adversity, The Market Powers On

Published October 6, 2017

William RutherfordDespite numerous negative events – hurricanes, shootings and nuclear threats – the market powers on as if there are no worries. But worries abound, and that is a good thing, because they discourage “irrational exuberance.”

Analysts expect earnings to be up about 3 percent in this earnings season starting in October; that is positive, but down from the 7-plus percent we have been experiencing. However, it is likely that earnings will be somewhat higher than 3 percent – perhaps in the neighborhood of 6 percent. Earnings are unlikely to exceed what was achieved in the preceding two quarters, which would mean the pace of growth is decelerating.

Forecasts for GDP growth remain stubbornly under 3 percent, in spite of the enthusiasm for less regulation and the tax reform on Trump’s agenda. Revised second-quarter GDP came in barely higher, at 3.1 percent. The Commerce Department said that the increase was mainly the result of farmers decreasing their stockpiles less than expected previously.

On the policy front, the tax reform agenda still provides hope for the market, but failure to pass significant legislation to date casts doubt on the prospects for such reform. […]

Markets Near New Highs; Rally Could Be Running Out Of Steam

Published September 8, 2017

William RutherfordContinuing a long-term rally that started in July 2009, equity markets have powered upward. The Dow Jones, S&P and NASDAQ trade near all-time highs. The recovery has been slow, but showed strength in the face of adversity several times, in particular getting wind under its wings with the surprise victory of Donald Trump as president. During his campaign, Trump made many promises, among them repealing and replacing the Affordable Care Act, tax reform and reduction of taxes, less regulation and repatriation of money held overseas. The market liked what it heard and began a powerful addendum to the existing rally.

At the same time, the global economy was recovering, which further added to the strength of the U.S. rally. But then the failure of the Republicans to pass a health care bill caused some observers to question the ability of Republicans to pass their other legislative goals, and doubts about Trump’s leadership skills set in. While optimism waned a bit, the economy powered on. The markets took strength from increasing corporate profits – 11 percent greater year over year through the second quarter of 2017.

The market worried that exogenous […]

Market Ignores White House Drama To Reach New Highs

Published August 14, 2017

William RutherfordFor months in this column, we have urged our readers to ignore the headlines and focus instead on market fundamentals. That strategy has paid off. The White House hi-jinx have continued to make the news, but the market has moved up in an almost steady manner.

U.S. equities are up 11.59 percent from the beginning of this year through July 31, 2017, continuing the long recovery since the Great Recession. On March 6, 2009, the Dow struck its low of 6,443. It has now more than tripled in value to over 22,000, more than making up the loss. Patient investors benefited.

Three years ago we moved our assets into U.S. equities because “they were the best house on a bad block.” U.S. stocks have been the best performing asset class in the world in those three years.

As of this writing, current earnings reports show that more than 70 percent of S&P 500 companies report having beaten their estimated earnings. Their earnings have been up a robust 11 percent, with earnings now on track to grow by double digits for two quarters in a row. So, although the market is fully […]

Worrisome Headlines Dominate Otherwise Strong Fundamentals

Published June 12, 2017

William RutherfordHeadlines last month were dominated by the White House with various scandals, investigations and withdrawal from the Paris climate accord. With the penchant for this White House to generate distracting news, we can expect there will be more headlines to digest.

In the past I have said that it is better to look at market fundamentals than headlines. Indeed the headlines could give you indigestion, but the market has continued its march to new highs. Other than the market, what’s up?

Market participants still believe in the Trump agenda of less regulation and a pro-business approach. This includes tax reform/cuts and a revision of Obamacare. However, the prospects for this agenda grow dimmer and dimmer, and in some cases may not happen. Still the market marches on. Gross domestic product is barely growing, at less than 2 percent annually, and shows signs of faltering. The Federal Reserve promises several rate increases, perhaps as many as three, this year; yet market interest rates barely budge, with the 10-year bond about where it was when the Fed announced its previous rate increase. The dollar strengthened on the Trump election and the likelihood […]

Markets Ignore Tepid Economic Data, Reach Highs For ’17

Published May 5, 2017

William RutherfordEquity markets have reached noteworthy new highs year to date. The Dow was up 5.96 percent, the S&P up 6.7 percent and the NASDAQ an unusually strong 12.34 percent through April 28.

The highs came with rising volume and lowered volatility. The highs came in spite of weak GDP numbers and personal consumption numbers. The GDP for the first quarter of the year increased an anemic 0.7 percent, and personal consumption was the weakest in seven years.

Additional burdens on the market were the threat of rising interest rates and storm clouds regarding North Korea. Also, U.S. factory activity eased in April, leaving growth on solid ground, but slowing the growth trajectory. Optimism about the Trump agenda had buoyed the markets after the election, but that optimism found limits as parts of the agenda failed or were stalled.

The rising markets reflected an increased appetite for risk, which in turn is now supporting consumer spending and investment. Business investment is expected, by some analysts, to increase 5 percent over the next two years. Personal consumption is expected to increase 2 percent over the same time frame. Core inflation is expected to reach the Federal […]