October 19, 2017

Stocks opened lower this morning due to “anxiety” according to Bloomberg. The Dow is currently down 38 pts and the SPX is down .17%. The Nasdaq is faring worse, down .6%. This is a clear risk-off day with utilities and telecoms in the green but most everything else in the red. The VIX Index is trading up toward 10.5 and VIX November futures are up around 11.8. The dollar is a trading a bit lower as well. WTI crude oil fell 1.3% to trade around $51.40/barrel. Not surprisingly, bonds are rising in price as yields fall. The 5-year Treasury yield edged down to 1.96% after testing 2% yesterday. And by the way, 2% was a 7-month high. The 10-year Treasury yield backtracked to 2.31%. But make no mistake, rates are rising. Famed technical analyst Louise Yamada says the recent upward move in shorter term interest rates suggests they’re “on their way for a reversal from the 36-year declining interest rate cycle, to a new rising interest rate cycle.” 

So we need to address the “anxiety” out there. In an interview yesterday, Treasury Secretary Steven Mnuchin said he believes investors are depending on congress passing a tax reform package this year. And if that doesn’t materialize, the stock market will fall in disappointment. Many professional investors disagree, claiming the market has little confidence in the Trump Administration’s ability to get it done. Debate aside, it is a little odd for the treasury secretary to discuss the stock market’s reaction to policy and legislation. 

Tony Dwyer of Canaccord Genuity was asked about the Trump Administration’s contribution to the market rally. He said the new administration represents a “non-negative” to corporate America. Corporate leaders aren’t banking on tax reform or an infrastructure spending package. But they are more encouraged to begin investing to grow their companies because the government is off their back to some degree. 

CNBC & Barron’s are doing an excellent job of reminding us of the anniversary of the Black Monday crash back in 1987. The Dow sank about 22% on that day. Anyway, they’re running a host of articles designed, it seems, to inspire fear. And speaking of fear, they interviewed Rich Bernstein the other day. He said throughout this recovery from recession retail investors have been “more scared that 2008 is about to repeat…than ever looking for opportunities to invest.” And he reminded us that widespread fear doesn’t usually accompany a market top. “Equities are most popular in the bottom of the ninth with two outs and two strikes.” In other words, we’ll need to see more enthusiasm and indiscriminate buying before the rally ends.  

The US Index of Leading Economic Indicators (LEI) slipped in September from prior month levels. The primary reasons were lower building permits, shorter workweek, and higher jobless claims. Clearly, the twin hurricanes temporary disrupted the data. And we recently learned that jobless claims have fallen back in October. LEI is intended to be a predictor of economic conditions 6 months into the future. The index is up 4.0% from year-ago levels, which is OK but not great. 

*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.