The argument here over the past three years is that the market can rise in sustainable fashion even
without the strong tailwind of primary liquidity growth from the Fed. In positive cases like this,
the private sector assumes the role of funding economic growth and a rising stock market through
internally generated funds and through the credit window via banks and other credit intermediaries.
Both the economy and the stock market struggled for the past nearly two years after the Fed shut
off the spigots. But, as this past year wore on, the economy has slowly recovered its footing
and the market has moved along with it. So, a positive economic environment has been regained
and can be sustained so long as major imbalances do not develop. The labor market is obviously
tightening, but there is slack in production and some in the services component as well. By today's
computer analytic capabilities, business inventories remain elevated, but have fallen to manageable
levels. Bank balance sheets remain liquid, so there is ample lending capacity available. Inflation
has been accelerating but remains modest. The Fed is now more active, but short rates are
accommodative as rates remain negative in real terms. So long as the economy can grow moderately
without triggering off both stronger inflation and rounds of tightening by the Fed, the stock market
p/e ratio, although very generous, is primarily vulnerable only to troubling external events.
I still want to see business sales fulfill the promise of the forward indicators and continue to
improve in performance. As well, I have my biases, and with a global economy not yet that far
out the tank, I have serious concerns about a Trump administration and how well they can
manage the path to genuine stability. Pundits and strategists continue to regard the incoming
crew positively, but, if I may speak colloquially, I fear this group can fuck things up to a
The weekly chart remains positive, but an intermediate term overbought condition is developing.
- Peter Richardson
- 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 !!!