The cyclical bull market remains intact. US business sales have recently accelerated sharply to 4 - 5% y/y and SPX net per share is starting to break out to new high ground. Leading earnings indicators imply rising earnings well into this year, with $130. an ok target, and with analysts now
looking for upwards of $150 in 2018 (assuming a battery of tax reforms are enacted). Inflation
is also on the rise with the CPI registering 2.5% y/y for Jan. '17. The Fed is now behind the curve
and is widely expected to raise short rates again before long. Total financial system liquidity is
adequate to fund the economy, but with business activity now much stronger, there is little excess
liquidity to fund the capital markets. Moreover, the production side of the economy has been
running flat, and if it resumes growing as expected, resources will tighten a little and inflation
pressures could intensify further. The current upswing in business activity is the third one since
the economy began its recovery in 2009 and to sustain it easily in the months ahead without over-
dependence on credit accumulation, both the real wage and jobs growth will need to improve.
Investors have yet to begin marking down the SPX p/e ratio as they should in view of prospective
faster inflation and higher interest rates.
Market players have so far only factored in the positive promises from The Donald when it comes
to allocation to stocks and equity portfolio strategy. That is starting to change as folks watch him
in action. There has been little effect on the stock market so far and for all I know it may stay
that way. But The Donald can be a wild and crazy guy, so be careful.
the SPX is now strongly overbought on an intermediate term basis. SPX Weekly
- 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 !!!