Jeff’s Stock Market Commentary: Continued US & Global Growth
Is The Trump Rally Over?
Summary: Although the US major stock markets are at or near all-time highs, the economic data signals continued US and global growth. My viewpoint is that we are still in the early stages of what could be a multi-year growth cycle.
If you listen to the talking heads on the business news channels it is likely that you will come away thinking that the market is overbought and on the verge of another crash reminiscent of 2000-2003 or 2008. As I talk with people (not my clients) I tend to hear the same thing—the markets are too high—then they talk about something like ‘valuation’. Granted, it is hard to argue that there is more upside potential ahead when the markets are already at all-time highs.
I distinctly remember making a similar argument in June and July of 2015 and back then the market drifted down throughout the summer and declined around 15% in August of that year.
So what makes it different now from back then?
The economic data. In June of 2015 the economy was already starting to show signs of slowing after a multi-year period of growth. As I’ve said in previous commentaries, my analysis of how to invest starts by looking at whether the economic tide is coming in or going out.
The Economic Climate Has Changed and How You Should Be Invested
Each money manager and/or investor has a process that helps them determine when, how and how much to invest. The process that I use starts by looking at whether the United States and/or global economy is expanding or contracting.
In other words, I first try to determine whether the global and/or US economic tide is coming in or going out. In a growth-slowing environment, there is more risk than reward in trying to capture the return of the S&P 500. In a growth-growing environment, we want to more closely track the S&P 500 (or similar equity indexes) because that is where the best risk/reward equation is.
If the economic tide is coming in, then I want to be invested in stocks and bonds that act like stocks; if the economic tide is going out, I want to avoid most stocks and invest more heavily in bonds.
Donald Trump the ‘Chaos Candidate’
Last week I read a book that referred to Donald Trump as the ‘Chaos Candidate’. What we have witnessed in the last two weeks sure fits the definition of chaos:
We have seen contentious nominee hearings.
We have seen Democrats boycott the hearings to delay votes, thus very few votes have occurred for his nominees.
The Republicans at the meeting in Philadelphia seem to be singing the same establishment tune they have been for months/years. (and that has resulted in low approval ratings)
Now we have a Supreme Court nominee where President Trump is already suggesting using the ‘nuclear option’ to get Gorsuch appointed. Doing so could possibly change the threshold of all future Supreme Court nominations.
Jeff’s Weekly Stock Market Commentary: The Stock Market and The Economy
Almost a year ago I remember predicting that the S&P 500 would set lower lows before it reached higher highs. The S&P 500 hit an all-time high of 2132 back on July 20th of 2015. As a result I had been moving out of stocks as we approached August 2015.
That turned out to be prescient because the markets had a 14% plunge in August of 2015. This is what the plunge looked like—a waterfall type event:
The market briefly recovered about half that loss then dropped back down to the lows in October 2015. Over the next few months the markets climbed back up to near its all-time high. Then, as we started 2016, the Federal Reserve announced it would be RAISING interest rates and it set off a market panic.
The stock market collapsed from 2116 on November 3rd to 1810 on 2/11/2016. It was the worst start of a year EVER; A plunge of 14.5% over a 3-month period.