January 19, 2017

Stocks opened lower this morning (Dow -27 pts; SPX -.15%). Leading the market lower are banks, biotechs, and REITs. Energy stocks are also lower in early trading as oil prices dip. The VIX Index is actually a little as well, trading around 12.2. Remember, traders are watching this fear gauge, which is expected to rise as the Trump Rally fades. WTI crude oil is recovering some of yesterday’s lost ground to trade up around $51.50/barrel. Bonds are selling of as rates rise. So after a month-long pause, perhaps interest rates are headed higher again. The 5-year Treasury yield is up around 1.97% and the 10-year is trading at 2.47%. So don’t miss the fact that today bonds and stocks and gold are all trading lower. 

Famed investor Jim Paulsen—of Wells Capital Management—says 2017 reminds him of 1987. We’re seeing a turn in the economy from slow growth to higher growth. And we’re finally seeing the return of “animal spirits” in the stock market. He believes bond yields will back up more, and the stock market will move higher in the near term. But that obviously makes it vulnerable to another correction. 

Long time equity strategist Tom Lee of Fundstrat just changed his stance to neutral on the market. He’s been consistently bullish for quite a while. He says Trump will have trouble passing his pro-growth policies and investors will be disappointed. He also worries about further strengthening of the dollar and even excessive tightening by the Fed. He expects a zero return for stocks in 2017. He advises investors to focus on CRAP (computers, resources, American banks and phone companies). Value will win over growth; small-cap over large-caps. 

Business & consumer sentiment gauges are generally pointing higher in recent days. The Philadelphia Federal Reserve’s Business Outlook survey jumped to 23.6 this month from 21.5 last month. That’s the highest since December 2014. Bloomberg’s Economic Expectations Diffusion Index just reached a post-recession high. In fact, the index suggests that consumers are more upbeat about the economy than at any time in nearly 15 years. And finally, NFIB’s Small Business Optimism Index just hit a 12-year high. So it’s interesting that the American Assn. of Individual Investors’ (AAII) Bullish Sentiment Index is falling. Whereas 50% of respondents felt bullish about the stock market back in November, the index has fallen to just 37% on the eve of the inauguration. I think it’s safe to say skepticism is creeping back in among retail and institutional investors alike. 

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