Home About Archives RSS Feed

@theMarket: Markets Remain Range-Bound

By Bill Schmick
iBerkshires columnist
It's the same old song. It has been playing over and over since the end of January. Higher interest rates, a stronger dollar, and, of course, the inevitable and meaningless stream of tweets from our Tweeter-in-Chief are keeping stocks range-bound. How long will this condition persist?
 
Both the Dow Jones Industrial Average and the S&P 500 Index have now posted their longest consolidation since 1984. The two indexes have been in correction territory for 113 trading days. That is a longer stretch than we have seen in decades — including the period of the 2008 Financial Crisis.
 
In 1984, it took the S&P 500 Index 122 days to emerge from the swamp, while the Dow required 123 days to do it. Only two of the last 20 corrections lasted for more than 100 trading sessions. The average correction length since the inception of the S&P 500 Index is 51 trading days. The absolute longest period was 229 trading days, which happened in 1978. So what?
 
The 2,810 level on the S&P 500 Index is providing strong resistance to the bulls, while the 2,700 level has been hard to break on the downside for the bears. The historical 12-month high for the index is 2,872.87. That's a mere 2.5 percent from here. So all-in-all, investors have nothing to complain about. We are up about 4 percent year-to-date — not bad, given the remarkable performance of last year.
 
Remember, we had little to no pullbacks in 2017. The average's 20 percent-plus gain was an almost straight-up phenomenon And that, my dear reader, was abnormal. A reasonable investor would expect to see at least half of that gain back, which occurred in February through March. Since then, we have been consolidating. 
 
This should not be a surprise to my regular readers. It has been my investment theme for months. I would say that stocks are doing well, given that we are in a rising interest rate/strong dollar environment. Despite these head-winds, corporate earnings are continuing to come through on the bottom, as well as the top line.
 
Yes, there is some worry and gnashing of teeth over what might happen if the trade war expands, but so far in this earnings season, few companies are actively cutting back on investment. They are just not increasing investment.
 
At the same time, corporate cash continues to be repatriated ($308 billion in the first quarter). While the argument by the president and the GOP that a return of this off-shore money would fuel capital spending was totally bogus, it did — as I predicted — manage to support the stock market. Almost $190 billion of that money has been used to buy back stocks so far.
 
Donald Trump's escapades — from his embarrassing and fumbling attempts at foreign policy, to his "unhappiness" with rising interest rates and the Federal Reserve — continues to amuse, bemuse, and in some corners, concern the 61 percent of Americans who are outside of his base. What he says or does might move the markets for a day or so.
 
Friday, for example, it was his threat to levy tariffs on all $500 billion worth of Chinese imports to the U.S. The Dow dropped almost 200 points, but by late morning, it had recouped those losses. It may be that Wall Street is simply tired of his posturing. In which case, I suspect he will just up the noise level until investors are forced to respond to his tantrums.
 
My short-term bet is that traders will try to push the averages higher, maybe back to the old highs, before failing once again. In a market where your fortunes are wholly dependent upon the next utterance from the White House, I can only guess. However, my longer-term view is that the tariff issues and the mid-term elections will keep the markets in check through September and into October. 
 
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.
Write a comment - 0 Comments            

The Independent Investor: Tariffs The Next Chapter

By Bill Schmick
iBerkshires columnist
Tariffs on $34 billion in Chinese imports were imposed, as expected, last week. China responded with $34 billion of their own tariffs on American imports. So far, this has been a zero-sum game. The question that investors are asking is whether or not the trade war will escalate.
 
I could say that this entire trade spat has been "much ado about nothing." The total amount of trade tariffs and counter tariffs don't add up to much given that China is a multitrillion-dollar economy. The war of words and threats between our once-allies, our antagonists, and the president, amount to much more.
 
Right now, Trump's statements would indicate he is ready to impose $500 billion on Chinese imports alone. If the Chinese (as they have promised) respond by levying a like amount on U.S. goods, we could see $1 trillion or more in additional tariffs. That would hurt the U.S. every bit as much as it would hurt China. If we also consider Trump's trade war on other fronts — Europe, Asia, emerging markets — then, look out below.
 
We also need to consider how this tariff issue will impact consumer and business confidence. If the tariff threat escalates, it will damage confidence, which, in turn, will reduce the potential for spending and capital investment. That would lead to an abrupt and sudden decline in economic expansion and the end to the bull market in stocks.
 
How likely is that? Not very, in my opinion; at least for now. In the meantime, the president and his men have managed to turn our allies into antagonists, while giving the Chinese an opening to fill the vacuum we are creating in U.S. international trade. America's attitude toward this development is predictably smug.
 
"The world needs our goods, especially technology," say the protectionists, "so what do we care that the Chinese will gain market share at our expense?"
 
As someone who has spent half my career investing in foreign markets, I can tell you that attitude is naïve at best. The global marketplace is extremely competitive. Companies respond to protectionism by moving jobs, plant and equipment to the areas that offer them the highest competitive advantage while down-sizing in those areas that don't.
 
This is already happening here at home: "Capital spending had been scaled back or postponed as a result of uncertainty over trade policy," wrote the Federal Reserve Bank in its latest meeting minutes. U.S. companies "expressed concern about the possible adverse effects of tariffs and other proposed trade restriction, both domestically and abroad, on future investment activity."
 
Consumer spending also slowed in this year's first quarter, registering the weakest growth in five years. The jury is still out on that front, however. We will need to see the second quarter numbers before we make a judgment call on spending.
 
Another unrealized impact of tariffs will be their contribution to the inflation rate. Tariffs do one thing: increase prices. While most investors worry about a tariff war's impact on overall trade, much of world trade will continue, but at higher prices. Tariffs are simply price increases levied by governments and paid for by consumers and business.
 
The markets are expecting a gradual increase in interest rates as the U.S. central bank works to normalize interest rates after years of easy monetary policy. What they fear most is a spike in inflation. They are already concerned that U.S. labor shortages are reaching a critical point. As companies compete for workers, wage growth will rise and with it the inflation rate.
 
The last thing the economy needs right now is a trade war, but it seems the president, in his wisdom, believes the opposite. Let's hope he knows something that we don't.
 
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.
 

 

Write a comment - 0 Comments            
Page 1 of 1 1  

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
North Adams' Helme Named Woman of Achievement
Adams' Berkshire Mill Damaged by Falling Tree
Bay State Winter Games Return to Berkshires in January
Letter: Bernard Has Earned Second Term
Cultural Pittsfield This Week: Oct. 18-24
Pittsfield Students Receive Superintendent Award
Cheshire Highway Foreman Advocates for New Grader
Pittsfield Airport to Serve as Hub For Disaster Preparedness
Rain, Wind Heading for New England
Strat-O-Matic Clinic To Be Held in Pittsfield

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (304)
Independent Investor (415)
Archives:
October 2019 (4)
October 2018 (3)
September 2019 (7)
August 2019 (5)
July 2019 (5)
June 2019 (8)
May 2019 (10)
April 2019 (7)
March 2019 (7)
February 2019 (6)
January 2019 (6)
December 2018 (4)
November 2018 (9)
Tags:
Stocks Selloff Stock Market Oil Debt Ceiling Pullback Retirement Greece Commodities Europe Congress Japan Stimulus Deficit Interest Rates Banks Federal Reserve Currency Wall Street Europe Fiscal Cliff Debt Jobs Recession Metals Election Housing Euro Crisis Economy Energy Taxes Rally Markets Bailout
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
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Stocks Soar on 'Skinny' Deal
The Independent Investor: Brokerage Business Not What It Used to Be
@theMarket: An October to Remember
The Independent Investor: Markets Bogged Down by Politics
@theMarkets: Markets Muddle Through
The Independent Investor: India's Bid for More Trade
The Independent Investor: The Era of U.S. Oil Independence
@theMarket: Investors Discover Value Stocks
The Independent Investor: Europe Throws in the Towel
@theMarket: Markets Break Out of 3-Month Trading Range