Home About Archives RSS Feed

@theMarket: New Highs Beget New Highs

By Bill SchmickiBerkshires columnist
Some people believe we are in a "melt-up." It is where the simple weight of money pouring into the U.S. stock market continues to carry stocks ever higher. Whether that qualifies as an investment thesis, or simply a lame excuse to justify record highs, it matters little to the bulls.
 
It is true that this past week, we actually witnessed a rare event — a two-day, 50-point drop in the S&P 500 Index — before stocks recovered.  But good news on Friday morning (job gains in the economy came in at 236,000) cheered investors. It was largely a goldilocks report where wage gains (considered inflationary) were flat for the month, bringing the the average hourly earnings rate up to 3.2 percent year-over-year.
 
Overall, the official U.S. unemployment rate is now 3.6 percent, which is the lowest level since 1969. It brings the total number of monthly job gains to 103 in a row, which has never happened before. Given that it is also the best start in the year for stocks since 1987, is there any wonder that exuberance is the prevailing mood on Wall Street (and in the White House)?
 
Even the bears, whose numbers are expanding by the way, admit that if we did suffer a correction, it would be, at most, shallow and sharp. That's the kind of correction you want, if and when it occurs. I have been reporting faithfully each week the bullish rise in investor sentiment and, although it remains flattish at 55.7 percent bulls, it is still quite high.
 
Earnings season, which is 80 percent complete, turned out to be better than expected in the minds of most investors.  And although the Fed did not cut interest rates this week at their FOMC meeting, I have to wonder if anyone really expected that to occur?
 
As we move into spring, it appears that the wall of worry we have been climbing is crumbling. We should finally receive a verdict on the U.S./China trade agreement as soon as next week, according to administration officials. Talks in China last week went well, and the Chinese delegation will be back in Washington this coming week to hammer out more details.
 
Some argue that a successful conclusion to this issue, which has been over-hanging the markets for almost two years, is largely discounted. Could we get a "sell on the news" reaction if a deal is announced?
 
We could, but I think it would depend on the level of the markets at the time. If, for example, the S&P 500 Index were to be trading above 3,000 or so, (another 70 points higher from here), then yes, it could be an excuse for some profit-taking.
 
And while everything seems rosy for the economy overall, we don't want it to get too much stronger in the short term. Remember, the Fed is data dependent. If, for example, the central bank did cut rates by a percentage point, as the president asks, in order to goose the economy, you can bet the next move by the Fed would be to reverse that and hike rates.
 
I believe the Fed's about face in interest rate policy last December is the real reason the market is where it is. If investors believed that the Fed's easy money policy might change, the markets would plummet. The Chinese economy might also be a factor.
 
In case you haven't realized this yet, China, as the world's second largest economy, has a substantial impact on overall global growth, including growth and inflation within the United States. Recently Chinese authorities have relied on fiscal spending to support their slowing economy, which has been hurt by the tariff issues.
 
A trade deal would be as good for China as it would be for the U.S. It could boost growth in both economies. But what's good for economies is not always good for stock markets. Rapid growth, on top of moderate growth, might ignite inflation.
 
In the past, Chinese demand for raw materials to fuel their growing economy has sparked inflation globally. If that were to happen again, it could force the Fed to reverse policy, raise rates, and cause a repeat of last year's sell-off. While this scenario is only one among several possibilities, it is something to keep in mind, given that we are within a week or two of a potential compromise solution in the trade talks.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Hoosic Riverside Stroll Reveals Incomplete Food Chain
New Lebanon Boys, Girls Win Swim Meets
Regional Planning Commission Tackling County Housing Issue
RMV Extends Designated Appointment Hours for Customers 75 Years of Age or Older
BART Announces Upcoming Enrollment Deadline
Cheshire Interim Town Administrator to Begin Search For Replacement
BCC Launches A Collegiate Recovery Community
Christmas Eve Storm Damaged Hoosic Riverbank in Williamstown
Berkshire County First-Responder Vaccinations Going Well
Pittsfield ZBA Approves Bloom Brothers Parking Amendment
 
 


Categories:
@theMarket (355)
Independent Investor (450)
Retired Investor (27)
Archives:
January 2021 (3)
January 2020 (2)
December 2020 (6)
November 2020 (8)
October 2020 (7)
September 2020 (6)
August 2020 (6)
July 2020 (10)
June 2020 (7)
May 2020 (9)
April 2020 (9)
March 2020 (5)
February 2020 (7)
Tags:
Jobs Taxes Markets Debt Fiscal Cliff Oil Japan Deficit Currency Stocks Economy Selloff Metals Stock Market Pullback Retirement Recession Congress Rally Commodities Bailout Europe Greece Crisis Wall Street Housing Energy Europe Interest Rates Debt Ceiling Election Euro Banks Federal Reserve Stimulus
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Equities Register New Highs, Until They Don't
The Retired Investor: The Reflation Trade
The Retired Investor: Asia: The Investment Case
The Retired Investor: Where Have All the Christmas Trees Gone?
The Retired Investor: Oil's Comeback
@theMarket: Same Old Stimulus Song
The Retired Investor: Markets Ignore China Sanctions
@theMarket: Markets Bet on Stimulus Sweepstakes
The Retired Investor: Bitcoin Is Back
@theMarket: Market Cyclicals Take the Lead