Stocks taking October in stride while whistling past the grave yard

As the first week of October slips by, global stock trading show no signs of whistling past the grave yard.

Daily records in the US have become an inside joke in newsrooms. Continue reading

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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?

Will bond market Trump historic stock run up?

Thursday I wrote about how the stock market’s move higher seem out of proportion to where the US and global economies are.

In the first 30 days after the election the S&P 500 is up 5% the best stock index move ever after a presidential election. The Dow Jones index is up 7% over the same time frame.

Well the confirmation to this euphoria in equities is the US Treasury market. The 10-year note yield over the same month after the election has moved from 1.7% to 2.4%.

This is a yuuuge move in a very liquid market. There needs to be tremendous selling in the $15 trillion Treasury market to get this historic move up in yields, which means the price of the bonds has fallen.

While the equity markets generally look out 6 months, the bond market has a longer time horizon given the duration of the notes and the bond traders are seeing a rising inflationary outlook, which could very well be in the cards, given President-elect Donald Trump’s cabinet choices.

Deregulation and tax cuts will spur growth, which means borrowing and perhaps the velocity of cash will increase.

The velocity of cash is what I have been writing about from time to time over the last three years. There was none and it attributed to the economic malaise we were facing.

Lending for personal and business loans were so curtailed — only the people who did not need loans were eligible. It did not make sense, but the regulations put in Dodd-Frank and other policies coming out of the Fed contributed mightily to the constraint of the velocity.

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.