Published January 8, 2018
Chalk up a remarkable year for investors.
At this point in time a year ago, the new U.S. president, Donald Trump, had been elected in what was considered a surprising result. A shock went through the market, as many investors considered their options amid changes in the investment climate.
The options frequently included exiting the market. Sworn into office in mid-January, President Trump offered cold comfort to the market. In a dystopian inaugural address he offered a bleak view of the U.S. While most presidents, particularly in their first term, offer promise and hope in an effort to unite the nation, Trump poured cold water on the American dream. The markets were confused and discouraged.
Still, out of this cloud of doubt, the equity markets began to show strength. While the headline news continued to be frightening, the economy was expanding. Led by technology, profits began to climb. Health care and discretionary consumer stocks added support. At the start of the year, Fact Sheet predicted 9 percent earnings growth for the first quarter of the year. Instead, earnings growth for the period increased 14 percent. The expansion continued throughout the year, […]
Published December 11, 2017
President Trump has been in office nearly a year. During that time, he has had scant legislative victories. He has attempted to roll back the signature accomplishments of former President Obama. He has generally only had success where Congress cannot intervene, even though the Republicans control both houses.
After a year of struggle, Republicans are poised to finally produce a win on a tax bill. Called a tax reduction and reform bill, it creates massive new debt for the U.S. Proponents argue that economic growth will make up the needed revenue to overcome the reductions in tax rates. History shows otherwise. Bill Dudley, president of the New York Fed, opines that the result will be even higher interest rates as the government borrows more to fund increasing deficits. Higher rates will dampen economic growth, making it unlikely that the bill will be positive for the economy.
Additionally, it is hard to see how the economy, which is operating at full throttle, can ratchet up the pace. With the unemployment rate at less than 5 percent, achieving improvement is challenging. And so, the tax bill may simply generate more debt for […]
Published November 10, 2017
With 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 […]
Published October 6, 2017
Despite 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. […]
Published September 8, 2017
Continuing 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 […]
Published August 14, 2017
For 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 […]