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
Woodlands Partnership Drafting Plans to Guide Its Future
Parks Commission Updated on Pittsfield's Outdoor Recreation Projects
SVHC Announces DAISY Award Winners
Pittsfield Police Seeking Information on Woodlawn Ave. Shooting
40 Under Forty Nominations Open
Grant Supports Stewardship of Bow Wow Woods
Should inflation affect your investment moves?
Berkshire County Baseball Umpires Offer Training for New Officials
Berkshire Family YMCA Gets $1.125M in Grants Toward Renovation
Pittsfield Recreational History Now Digitized On Berkshire Athenaeum Website
 
 


Categories:
@theMarket (396)
Independent Investor (451)
Retired Investor (75)
Archives:
January 2022 (4)
January 2021 (4)
December 2021 (9)
November 2021 (7)
October 2021 (8)
September 2021 (9)
August 2021 (6)
July 2021 (8)
June 2021 (6)
May 2021 (6)
April 2021 (9)
March 2021 (8)
February 2021 (8)
Tags:
Europe Currency Rally Selloff Federal Reserve Markets Debt Retirement Interest Rates Economy Taxes Wall Street Stocks Debt Ceiling Banks Pullback Metals Stock Market Energy Commodities Japan Europe Jobs Euro Stimulus Oil Election Fiscal Cliff Bailout Congress Housing Deficit Recession Greece Crisis
Popular Entries:
The Retired Investor: The Hawks Return
The Retired Investor: Has Labor Found Its Mojo?
The Independent Investor: Don't Fight the Fed
The Retired Investor: Time to Hire an Investment Adviser?
The Retired Investor: Climate Change Is Costing Billions
@theMarket: Let the Good Times Roll
The Retired Investor: My Dog's Medical Bills Are Higher Than Mine
Independent Investor: Europe's Banking Crisis
@theMarket: One Down, One to Go
@theMarket: Quarter Ends With a Bang
Recent Entries:
@theMarket: Beware the Hikes of March
The Retired Investor: No-Shows Threaten Economy
@theMarket: Fed Meeting Notes Throw Markets a Curve
The Retired Investor: My Dog's Medical Bills Are Higher Than Mine
@theMarket: Markets Up on Thin Holiday Trading
The Retired Investor: Climate Change Is Costing Billions
@theMarket: Markets Are Heading for Trouble
The Retired Investor: Time to Hire an Investment Adviser?
@theMarket: Markets Keep Churning
The Retired Investor: Has Labor Found Its Mojo?