Stocks soar despite anemic GDP

As the first quarter ends Friday we see that while sentiment has exploded, economic growth is muted.

On Thursday the feds released the third revision (not the final revision since it will be changed again and again) of GDP for the final quarter of 2016 and the year.

The latest revision of Q4 showed growth of 2.1%, which was two bps higher than the 1.9% in the former reading released last month. But for all of 2016 the US GDP growth was only 1.6%, which demonstrates the lackluster growth over the eight years of the Obama administration.

The Obama administration is the first modern presidency since President Hoover not to have a 3% annual GDP growth during its terms.

Fast forward to today, we will not get the first reading of Q1 2017 until next month, but let’s look at the equity markets. The Dow Jones industrial average is up nearly 5% for the year, while the broader S&P 500 is up 5.8% and the Nasdaq is soared 9.9% doubling the Dow.

By comparison the Nasdaq was only up 1.3% for Q4 2016, the S&P 500 grew 3.2% and the Dow rose 8% over the same period.

So the question to be answered is, which is driving the economic bus, consumer sentiment at a 10-year high leading to equity prices soaring? Or are higher stock prices driving sentiment?

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Dow industrials get coal instead of 20K

As I wrote on Dec. 19th, Dow 20K was not in the cards this year.

The Dow rose 11.7% from The Trump election to its all-time high close of 19,974.62 on Dec.20, and then churned lower.

This wall came with the backdrop of the Fed raising rates a week prior and the Trump administration coming into full view with final choices being locked in.

Now, Dow 20K is nothing more than a psychological milestone, which the financial networks focused on for TV theater, no more important than any other market technical level.

However, as the year winds down, there appears to be consensus growing that the beginning of 2017 will mimic early 2016 as the window-dressing of year-end passes and a strong selling wave will hit equities.

In 2016 the Dow lost 11.3% between New Years and Feb. 11. But from Feb. 12 through yesterday’s close the Dow rose 26.7%.

In early 2017, we also have the dynamic of people booking profits with sales, in the belief that capital gains taxes will be lower. A key part of the lift off in 2016 was the fact that the Fed — although jawboning about additional rate rises in early ’16 to follow-up on the Dec. 2015 hike — came clean that more hikes were on hold.

Again this year we had the Dec. hike and the jawboning of at least three additional hikes in 2017.

Therefore, I see history repeating itself in the markets for the beginning of next year, but the impetus for stocks to move higher have more to do with the first 100 days of Trump’s presidency, than the Fed early on.

I believe the Fed will not hike next year before June if at all in the first nine months of 2017.

Taking stock of equities run up

Yesterday we spoke of traders window-dressing their returns at year’s end to make clients portfolios look better.

Monday’s trading was not that, it was the black-box algos trading up to set new all-time high records on the Dow Jones industrials, the broader S&P 500 and the tech-laden Nasdaq.

The President-elect’s honeymoon is being extended as he rages on so do the machines.

Donald Trump’s war on the media, which gave him little chance of winning throughout the campaign, is the perfect illustration of “Things will change around here.”

And while traders don’t like change, the algos love it, thrive on it to make incremental bets a million times an hour to eke out profits.

On March 9, 2009, the Dow Jones was at 6,547.05. Today we may see Dow 19K hats on the trading floor.

Now as I have written many, many times, most of those gains came at the expense of Americans not in the stock market — in the form of zero interest rates.

The savings interest you would have received on your bank accounts, instead went to Wall Street in the form of cheap loans from Fed chief Janet Yellen to bolster profits in the ailing banking system.

It’s the ultimate zero-sum game. Main St. got zero, Wall St. got some.

And many middle class Americans lost that game, with some of them not even counted anymore as middle class because of lost jobs, homes and opportunities. But here we are.

So when a major exchange crosses a milestone number like 19K on the Dow, it’s headline news. And good fodder for the conversation around the Thanksgiving table.

But remember the Dow, S&P 500 or the Nasdaq are not the economy and in this cycle are almost contrarian bets to the health of the US.

 

 

June's a tune up for rest of the year

So June is here and the living isn’t easy.

Last week I wrote about the adage, selling in May and going away.

Here are the index levels on 5/27/16 and for the last day of May:

Dow Jones: 17,828.29   17,787.20

S&P 500: 2,090.10   2,096.96

Nasdaq: 4,901.77   4,948.06

Gold: $1221.30   $1,218.60

Silver: $16.30   $15.99

US 10-year: 1.833%   1.833%

Crude: $49.03   $48.38

So there’s the movement over the Memorial Day weekend. The dollar index is 87.62 at the end of May.

I believe we will look at these levels again after the political conventions in July. I would say it might be a good thing to look at it after the Fed raises rates in June, but that won’t happen.

Why is your nest egg still in the stock market?

Wake up!

What is the upside to keeping your 401(k) or other retirement funds in stocks. Did you learn nothing from 2008?

You are on the wrong side of the Federal Reserve and a global recession. The major indices are down over 11% this year alone. More than $16 trillion has been lost in global equity value in the last 6 months.

You think buy and hold is the way to go? Tell you what, if you don’t lose another 10% in your fund, that’s yours to keep.

“But my adviser says ‘stay the course.'”

Listen, if your compensation was determined by the amount of assets you manage, then you would give the same advice.

You don’t have to be a market-timing pro to know that stocks are going lower while the Fed still has a bias to raise rates. As I said here you’re only hurting yourself.

Why not park the funds in a money market fund for the time being? It’s not like you will be perfect, however you conserving your wealth. Why lose another 10% in assets before pulling and then miss a turn upward?

You don’t need to time it perfectly, you just need to catch it when everyone is so bloody that equities have to go higher. That will probably be in March as the Fed talks about lowering the rate back to zero when the S&P is close to 1,500.

But for now, let the global central bankers experiment on their fix with your money out of the game. If you miss the first 3% move up on stocks, it’s fine because you also missed the last 10% move down.

It’s about preserving what you have in order to get the most bang for your buck when stocks turn around. It’s really that simple.