Renewed Tariff Tiff/Tantrum from Tweet

We woke up today to one of those infamous tweets from the President. Surprisingly, without notice, he began targeting China and a renewal of the tariff tiff or tariff tantrum. As you know, I am so firmly against tariffs as an economic weapon because no one ever wins. It’s just about losing less. In a perfect world, there shouldn’t be any tariffs at all and each country’s goods and services should stand on their own merit.

As I have said all along, I fully understand why Trump has been taking this course, but I don’t agree with it. And if we can’t make a deal with China, something that the administration has been feverishly working on for many months, it won’t be hard to imagine expanding this battle into Europe. That’s not good.

As you would expect, our stock market is set to open sharply lower on the heels of global markets falling low to mid single digits. One thing I said to a reporter early this morning, 500 Dow points at 26,500 is not what it used to mean at 20,000, 15,000 nor 10,000. We’re talking about 2% which historically is just one normal up or down day in the distribution of daily returns.

The question now is, will this become the beginning of a decline or a short-term wonder.

Last week, I commented that I thought stocks had begun a period of digestion or even a mild pullback. I still think that’s the case and not the beginning of a meaningful bout weakness. If the data change, so will I, but with so much internal strength leading up to the recent peak, the odds still favor more upside.

Let’s not forget that the S&P 500 scored a marginal new high last week and the NASDAQ 100 saw a decisive new high. Large declines typically do not begin from all-time highs. They usually take time to rollover by declining and rallying.

Sector leadership remains very solid and the New York Stock Exchange Advance/Decline Line just scored its own all-time high. High yield bonds were in blue skies territory last week. In other words, the canaries were all alive and singing. Bull markets do not end with such positive behavior.

After the big down open, you can expect a quick bounce before the rest of the day begins to shake out. It’s much more important where stocks close and how they close than what happens in the first hour of the day.

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Powell Pours Cold Water

The Federal Open Market Committee (FOMC) concluded their two-day meeting on Wednesday with no change in interest rates, as expected. While markets initially reacted positively as the prospect for a rate cut later this year remained very real, Fed Chair Jay Powell, quickly and curiously doused cold water on those hopes, citing “transitory” low inflation. I call it “curious” because after countless years of historically low rates and multiple rounds of quantitative easing that created roughly $4 trillion of new money in the system, the Fed has failed to spark inflation above their 2% target for any meaningful period of time. So when Powell comments that the low inflation is temporary, it’s leaves you scratching your head a bit.

Conspiracy theorists probably believe that it was an attempt at payback to President Trump and his administration for the constant criticism of Powell. Taking it a step further, that same group may even posit that The FOMC will try and derail the economy ahead of the election to help defeat Trump. While this may make good water cooler gossip, I find the whole argument to be laughable.

Regardless of what Powell said or meant to say, the markets ended the day with a sharp reversal across the board. While one day reversals don’t have the bite they once did, I do think stocks have entered a short-term digestive period with either sideways action or a mild pullback starting. I wouldn’t be surprised to see a quick rally over the coming few days and then more modest weakness over the coming few weeks. May 1st had become a seasonally strong day for stocks with immediate weakness to follow. I think it’s likely we will see the opposite this year.

Given that I have been in Arizona with a jam packed schedule, I haven’t watched nor read to see what the pundits are saying about “Sell in May and go way.” May traditionally begins the weakest 6 months of the year and it’s often a media topic as to whether that needs to be heeded each year. Right now, the data don’t suggest any meaningful weakness like they did at the end of September. The bull market remains alive and in fairly good shape.

 

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GDP Blows Out. Stocks Don’t React.

It seems like after a few frustrating weeks with the server migration, the blog is back online with all content restored. If you see anything that is  broken or clearly missing, please let me know. Thanks for your patience!

On Friday, the government released the first look at Q1 GDP and it blew away expectations, surging more than 3% when some “experts” were forecasting 0% growth and many were below 2%. Given the magnitude of the Q4 stock market decline and what has become traditional Q1 economic weakness, I thought GDP would be lucky to see 2% in Q1. In this case, I was happily wrong.

When I posted comments on Facebook about the GDP report, there were a few people who couldn’t wait to disavow the report as the economy was growing in the “wrong” areas and that I was “cherry picking” data to only highlight the good news. Additionally, I was accused of not looking at data impartially because I had some political agenda, if that’s even possible. Anyway, 30 years in the business, I have ALWAYS called it like I saw it, whether people agreed to not. And that’s exactly what I will do going forward. I made no bones about what I thought was a tectonic shift after the 2016 elections where the government would focus on pro-growth policies. I thought it would be very bullish for the economy and markets and I still do.

Interestingly, stocks did not react all that positively to the GDP surge. I have always said that what matters most is how markets react to news, not what the actual news is. In this case, it certainly looks like the market had already priced in better economic growth. Defensive sectors actually behaved better than economically sensitive ones which continued their mild pullback. And just as the masses were all getting so excited, so greedy about crude oil and energy, the sector saw a nasty reversal last week which should continue lower.

Markets may be quiet, but there is much going on beneath the surface. I still like transports and banks for the next leg higher. More on that later.

Glad to be back online.

97 degrees in AZ on Sunday. Rainy and 80 today.

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Sectors Strengthening. Buy the Pullback

First, I want to apologize for my inconsistent posting lately. We have been trying to migrate to a new and upgraded WordPress server at Godaddy and that has taken a lot longer than I thought. At first I didn’t realize that I couldn’t post new content until everything was migrated over and then I had to have Godaddy migrate everything over all over again. So, I am in limbo. Sorry about that.

Thankfully, the markets have been very quiet lately with a mild drift to the upside or downside for the major indices. Regardless, as I have written about all year, fresh all-time highs remain my forecast and I am not ruling out Dow 30,000 in the next 11 months.

Semis and discretionary remain the power sectors with the former going somewhat parabolic on the news of Qualcomm finally settling its longstanding feud with Apple over patent infringement. You can see the chart of the semis below. As I wrote about earlier this month when the transports were “percolating”, this key sector has really kicked it up a notch and further strength could really provide fuel for stocks to move higher into summer. Regarding the banks, they have been so beaten down and expectations are so low, they are interesting here, but until price action is more compelling, I will just continue to watch.

You may have noticed that the healthcare sector has been decimated lately as Bernie Sanders’ poll numbers have risen and talks of Medicare for all have been all over the news. While this issue isn’t going away anytime soon, the sector is presenting itself with a short-term trading opportunity right here and now. When I did a deep dive into the stocks, there were certainly a few I liked better than others and I will try to carve out some to discuss later this week.

The stock market bulls continue to do absolutely nothing wrong. Stocks look a tad tired, but that’s about it. Mild and modest pullbacks can be expected at any time and for any reason. However, until proven otherwise, all weakness is a buying opportunity.

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Still Bullish. Junk Bonds & Taxes

Stocks have definitely been quiet of late although that’s from a bull’s perspective from the inside looking out. There has been a very slight drift higher. From a bear’s perspective from the outside looking in, it must be painful first watching stocks relentlessly melt up and then continue to grind higher day after day after day. These types of markets wear on anyone holding cash waiting to invest. From my perspective, I have tried to do my best not to screw up my bullish outlook.

Looking at the major indices, it’s hard to make a seriously negative argument. Sure, I can poke some holes, but nothing significant. Of the four key sectors, the semis and discretionary continue to rock. Transports look like they want to pullback and then explode higher while the banks just frustrate investors. I think if the financials are going to shine, their time is coming this quarter.

While I have written about some recession concerns, the credit markets are not showing any worries. High yield bonds just keep making new highs day after day and week after week. Long before stocks peak and well before the economy peaks, I fully expect the junk bond market to put in a major high. We’re not even seeing junk bonds peak yet, so I have to laugh at all those Chicken Littles out there who yell that the U.S. economy has been in recession for months. That’s just not the case.

If I had to point to one somewhat dumb little supporting fact at just how strong stocks are, look no further than the strength leading up to tax day. While roughly 80-85% of the country saw their taxes fall in 2018, we know that those of us living in high SALT states like CT, NY, NJ, CA, IL & MA may see higher tax bills due today. I would have thought that would have caused a mild pullback to meet those liabilities, but maybe I am either overthinking it too simplistic in my analysis.

Anyway, today is tax day and it’s typically one of the strongest days of the year. I think the logic goes that investors make their IRA contributions at the very last minute and portfolio managers tend to invest that all at once. I actually reasoned that people sold some holdings to cover tax bill and sellers got exhausted before today. Who knows. I’m glad tax day is behind us. I do like seeing all that money in my checking account. That is, until the IRS pulls it and then cashes my April estimated tax check.

 

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Junk Bonds Say Full Steam Ahead

It’s been a fairly quiet few days for stocks after the better than expected employment numbers were released on Friday. The economy created 196,000 new jobs versus the 175,000 expected. As I wrote about then, I was expecting a strong number with a sharply higher revised number for February. While the former happened, the latter certainly didn’t as February was only revised higher from 20,000 to 33,000.

There’s nothing wrong the major indices. All looks fine. The four key sectors are split with semis and discretionary rocking and rolling, but banks struggling and transports looking like they want to burst higher. High yield bonds continue to quietly shock and surprise at all-time highs. I’ve been saying this for years, but certainly of late, bull markets do NOT end with behavior like this. Junk bonds usually top out long before the stock market. Risk on remains in place. The bears are and have been wrong.

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Jobs Friday

Today, we have what is always labeled as the “all important” monthly jobs report. Frankly, given the Fed’s recent 170 degree turn, I don’t think it’s that vital unless the data either completely fall off a cliff or completely spike. Both are unlikely. After February’s unexpectedly weak report, I said that I fully expect a sharp revision higher when March’s report is released in early April as well as a decent report for March. I still feel that is the case. If it turns out that I am wrong and we see more economic weakness than recession may be closer at hand than I thought. That would cause me to rethink a lot of things. Let’s wait and see what happens. I’m sticking with the weight of evidence that points to strength in the jobs market.

Not much has changed on the stocks front. A good employment report should send them higher, but they still look a little tired in the short-term. Bonds should weaken on a good report but they look like they could bounce after that. Gold probably looks the most interesting here as it is set up for an upside move.

That’s it for today. I’m in Tampa with my little guy to watch UCONN take on mighty Notre Dame tonight in the Final Four. It’s going to be a tough one for sure. We don’t seem to fair well against the Fighting Irish on Fridays during Lent.

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Lyft a Bust??? Stocks Soar & Roar

Last week, we ended with the hottest and most anticipated IPO in a very long time. It was one that caused me to dust off my HOT IPO Roadmap and tell you to run for the hills. Lyft came public to all the glory and hoopla of a Ringling Brother circus. And certainly not to my surprise, it fell flat on its face after running above $88. Last I checked, it was sub $70. The pundits were chastising Uber for waiting to be number two. Who’s laughing now? I am sure Uber is learning a valuable lesson!

Regarding the stock market, the bull remain long and strong. However, it seems like a whole new group of bears have just started to notice that an epic rally has been taking place since Christmas. I saw some of the loud and proud bearish pundits who have been pounding the table all year that stocks absolutely had to revisit the Christmas lows and probably break them. These guys were singing the market’s praises as if they had been positive all year. One clown says he used to be a broker before he started blogging and became a pundit. Last time I heard him comment, he was invoking the Logan Act regarding Trump. I don’t know how pundits stay so wrong for so long and then flip a switch, revise history and claim victory. I actually do know. It’s because there’s no accountability.

Anyway, I can spend all day laughing at pundits who refuse to ever admit defeat and just revise history. It’s like those “floor traders” we see on TV who don’t really do anything but walk around the floor socializing and waiting for someone to ask their opinion. Most trading is done electronically. They don’t manage money. They aren’t fiduciaries and frankly, they’re just around for show and entertainment.

Geez, I sound salty and ornery today like my buddy Sam Jones. I’m really not. And I had a great weekend in Albany and Vermont watching basketball, skiing and catching the Mount Snow Spring Brewer’s Festival.

As most of you know, I have no problem admitting I am wrong because it happens pretty much every day as I am reminded at home. “Dad, you’re so wrong”. “Babe, you don’t know what you’re talking about.” While I absolutely can’t stand Duke, I thought there was no way they could lose before the Final Four. Wrong. I thought my UCONN women would have a very tough time on Sunday against Louisville. Wrong. For a few weeks in early January I thought stocks would see a secondary decline into March. Wrong. 30 years in business, I am still learning each and every day. Make a trading error? Fix it ASAP. Don’t wait and hope it goes my way. Cut your losses and take my lumps early and move on. Markets are usually right. Markets also don’t care what price I bought or sold anything at.

Moving on…

Stocks roared out of the gate to begin Q2 as Chinese economic data was unexpectedly robust. The S&P 500 broke out to new highs for 2019 and the highest level since October 10 as you can see below. The NASDAQ 100 looks very similar and equally as strong. Before I continue beating my chest about all-time highs, I want to add that Monday was somewhat emotional for the bulls. As such, I would not be surprised to see some pause to refresh or even a little pullback over the coming week or two. It wouldn’t be one that I would take much action on, but I would be aware. Ultimately, as I have said every week all year, stocks will resolve higher and buying any and all weakness remains the strategy until proven otherwise.

The Dow Industrials are lagging as you can see below, but no longer by a huge margin. The Boeing news has settled down and I expect the Dow to kick it up a notch as Emeril would say. The S&P 400 and Russell 2000 are the two lagging indices that need to step it up sooner than later. If the bears want to point to something concerning, there it is.

All in all, stocks continue to soar ahead as I spelled out in my 2019 Fearless Forecast. All-time highs are coming. Have patience. There will some trading ranges and pullbacks and frustrations along the way. The economy is decelerating but I don’t think recession is here just yet.

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Stocks Pause, Bonds Yields Collapse

Greetings from Baltimore with some absolutely beautiful spring weather waiting for me! I knew my day would be great on Tuesday when I arrived at the airport and saw not a soul around. From the time I dropped my car off at 7am to the time they closed the boarding door at 7:30am to the time I landed and picked up my rental car at 9:15am, every minute was a pleasure! And my day only got better from there as I got to visit with some special folks throughout the day and evening. Let’s hope I didn’t jinx myself with my travels today.

The bears tried to follow through on Monday from Friday’s red day, but ended up not making much noise by the time the day ended. The bulls couldn’t do much better with some really nice early morning gains on Tuesday. In short, we have the Dow Industrials in a trading range, the S&P 500 and NASDAQ 100 in uptrends and the S&P 400 and Russell 2000 in downtrends. In other words, the stock market overall is somewhat digesting those massive post-Christmas gains and not beginning a major move to the downside.

Bonds and defensive sectors continue to be the real (and quiet) story. As I keep writing about over and over and over, utilities and REITs have behaved the best since last summer. After seeing yields on the 10-year Treasury Note spike to 3.25% last year and hearing the pundits all predict skyrocketing interest rates, those same yields have collapsed to under 2.4% as you can see below. That is a reflection on slower global and U.S. growth and more demand for our bonds. When competition for U.S. bonds approaches 0% or even negative yields, investors will flock to where their money is treated best, causing our yields to fall. Of course, they do have currency risk if those investors need to convert from the Euro, Yen or some other non dollar currency, but I think you get my drift.

Let’s keep an eye on Boeing and the growing saga with 737MAX. Frankly, I am surprised that the stock has held up so well in the face of what I think could possibly be an enormous earnings problem long-term, worst case. And now we have another issue last night with that aircraft. I just don’t understand how the FAA could certify a plane that they knew had problems which needed software to fix. If the plane needed more powerful engines that caused the nose to suddenly rise, how could they let Boeing move forward with the design and not force them back to the drawing board?

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Boeing, Mueller and Yield Curve, OH MY!

A week ago, I started off my writing that a stronger seasonal headwind was in play for the week, but I didn’t think it would be a significant decline. Stocks did pause overall, pulling back about 1% although it certainly did feel like there was more to it, especially if you watched the various headlines come across with Boeing and the Mueller investigation, BREXIT and the yield curve once again. For a stock market that has risen almost vertically since Christmas, all the news seems to be on the dark side. Doesn’t anyone want to report anything good?!?!

The Dow Industrials, S&P 400 and Russell 2000 have certainly been lagging the S&P 500 and NASDAQ 100. Nothing there to indicate anything worrisome. Semis and discretionary look great while banks and transports stink. A little worry to be had there. Junk bonds have been solid as a rock and the New York Stock Exchange Advance/Decline Line has powered well past its old all-time high.

Seriously folks, how can the bears argue with that behavior? We are seeing widespread participation in this rally as we have since Christmas. I know. I know. They will tell you that it’s all the “bond proxies”. In other words, the NYSE A/D which I show you below is so strong because bonds are rallying and that’s because the economy is heading into recession. Well my friends, the next recession is always coming, but it’s not this week or this month or this quarter. And I don’t think it’s next quarter either.

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