About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Thursday, November 10, 2016

The Stock Market As Best As I Can Figure

Back on 10/27, I opined that since the classical conditions for a bear market had not been met, it
was likely premature to write the obituary for the current cyclical bull. The uptrend that was in
place since Feb. of this year was clearly broken by the recent Aug. / Oct. corrective action. and
one could argue that this last leg up through Aug. was the third and final one. But I thought it fair
to wait on that call because it was not underwritten by a clear negative fundamental picture.

The market is now in a seasonally strong period that could last through early spring 2017. Profits
appear to be turning up, and both candidates for the presidency did have fiscal stimulative
measures on their agendas for 2017. Trump's was far larger in scope and with the GOP set to
take the White House plus both sides of the Congress, market players have become re - energized
and have rallied the market strongly from a moderately oversold condition. The SPX bounced up
from its 200 day m/a and awaits further confirmation from a positive reversal of the 25 day m/a.
SPX Daily

We do not know the fate of Trump's stimulus proposals but investors seem willing to bet that
sizable pieces of his tax cut and spending programs will pass, thus buttressing the economy and
profits through next year and into 2018. Sharp upturns in longer dated Treasuries also suggest
fixed income traders agree as they are beginning to factor in higher inflation from faster growth
and increased utilization of capital resources. The roughed out projections for next year also
signal that the Fed is likely to raise short rates to keep inflation in trim. With a larger Treasury
calendar in prospect along with stronger business pricing power, there may also be some rotation
underway from bonds into stocks.

The chart linked to above shows that rapid rises in RSI are often followed by market pullbacks,
and the combination of Trump stimulative measures, should they eventuate, along with probable
Fed tightening may well be a recipe for increased market volatility in the months ahead.

As well, there  could be a substantial timing issue involved regarding Trump stimulus programs.
If he is interested in re - election, fast enactment of tax relief and higher spending issues could
produce an overheating economy before 2020, and leave Trump in a tougher political situation
at that time.

Finally, the US is experiencing social tensions that are running just below the boiling point.
These acute social misgivings should eventually recede, but political miscues in the early
going of the Trump presidency could create further fracturing of of the public's mood that
might affect business and investor confidence.

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