Don't Sell Yet: The Market
Continues To Roll
Thinking and Doing
The stock market manages to ignore
the moronic tweets of our bumbling and ill-equipped President
as it continues to deliver one record high after another. And don't let
#Trump fool you; the market gains are not thanks to his actions, but in
spite of them. The good news is that the economy appears to be on sound
footing, good enough, in fact, that the Fed felt comfortable enough to
raise their prime lending rate by 0.25% last week, and the stock market
soared on the news. As I write this, all the major indices are within a
whisper of their record levels. So for now, I think it's best to follow
an old Wall St. adage: "Don't Fight The Tape". Basically, that means
keep riding the trend, until it stops. Too many investors jump ship
long before the primary bullish trend is over. My advice is to just
stick with what's been working.
Let's take a look at the chart of the #DJIA. After
blowing right through #Dow20k, the venerable index
kept right on going until it briefly surpassed
21,000 a few weeks later. I would expect a short period of
consolidation now, between 20,000 and 21,000. Then, unless there is new
stupidity from the White House, or some other external shock, I think
we can expect even further gains down the road as Q1 corporate earnings
are reported in April.
The more sensitive Dow
Jones Transportation Average has had a much more steep drop after
hitting its record high a few weeks ago. After rising on the
unrealistic hopes of Trump's $1 trillion infrastructure fantasy, it's
now backing off on the understanding that those wildly optimistic plans
will likely never come to fruition. That being said, the economy is
doing better, more people are working, and therefore spending money. So
I expect the index to continue its upward trajectory after it finishes
I would have to say that the Dow Jones Utility
Average is the surprise of the market right now. The staid index of
"widows and orphans" has enjoyed a 14.5% gain over the past four
months, which is pretty good for a basket of utilities. The sector
continues to enjoy the relatively low interest rates, and even survived
the first Fed rate increase. Now let's see if the index can
the record set last July.
Key Economic Statistics
to the Department of Labor, the
figure for seasonally-adjusted initial jobless claims for the week
ended March 11 was 241,000, a number basically in line with the prior
week, and slightly higher than the prior month's figure.
The four-week average of 237,250 was a decrease of about
7,000 from the prior month.
non-farm payroll employment report in February far
surpassed expectations for the second month in a row as
235,000 jobs were gained in the
and 9,000 net jobs were added back to the
prior two months. The household survey reported that the unemployment
rate dropped back to 4.7%, at the same time the labor force
participation rate inched up to 63.0. Average hourly wages for blue
collar workers rose to a new high of $21.86 while the average work
week has remained stuck at 33.6 hours for twelve of the last thirteen
million workers were counted as
unemployed, and 1.8 million people remained
unemployed longer than 27 weeks. The seasonally
adjusted number of people who could only find part-time work rose to
5.7 million while the number of marginally attached workers
dipped to 1.7 million. The number of people holding multiple
jobs jumped to 7.98 million. All of this resulted
in the U-6 "underemployment" rate falling to 9.2%, which is
the lowest level in a decade.
Congressional Budget Office (CBO) estimated that on a net present value
basis, the nation's budget deficit was $192 billion in February,
resulting in a deficit of $348 billion for the first five months of
2017, roughly in line with the deficit for the same period last year.
Census Bureau reported that privately owned housing starts
increased 3.0% in February to 1,288,000, which was up 6.2% from a year
ago. It was also the largest total since late in 2007.
Census Bureau reported that on a seasonally adjusted annualized
basis 555,000 new homes were sold in January, up
3.7% from December, and 5.5% from a year ago. The estimate of the
number of homes for sale was 265,000, representing 5.7
months of inventory at the current rate of sales. The median sales
price was $312,900, just above the rising 12-month moving
average price of $310,808.
National Association of Realtors reported that 5.69 million existing
homes were sold in January, at the highest level since May
2010, which was up 3.3% from the prior month, and 3.8% from a year
ago. The estimate of the number of homes for sale was 1.69 million,
representing a minuscule 3.6 months of inventory at the current
rate of sales. The median price was $228,900, is just below
the rising 12-month moving average price of $233,350.
to the Institute for Supply Management (ISM), economic
activity in the manufacturing sector expanded in February for
the sixth month in a row, rising from 56.0 to 57.7. The ISM index of
non- manufacturing activity rose from 56.5 to 57.6, which signaled
growth in the service sector for 85 consecutive months. These are solid
numbers, suggesting the economy continues to hum right along.
Conference Board reported that its index of Leading Economic
Indicators (LEI) was increased 0.6% in February, following similar
0.6% in January and December. "After
six consecutive monthly gains, the U.S. LEI is at its highest level in
over a decade. Widespread gains across a majority of the leading
indicators points to an improving economic outlook for 2017, although
GDP growth is likely to remain moderate," said Ataman Ozyildirim,
Director of Business Cycles and Growth Research at The Conference
Board. "Only housing permits contributed negatively to the LEI in
February, reversing gains over the previous two months.
to the "second" estimate by the Bureau of Economic Analysis,
GDP increased at a tepid annualized rate of 1.9% in Q4 2016. This
poorly with the 3.5% rate of growth from Q3 but is slightly better than
the 1.4% growth rate in Q2 and 0.8% in
Q1. It is also slightly better than the 1.4% from Q4 2015.
This report did not dissuade the Fed from announcing a
0.25% rate increase last week.
to the BLS, the seasonally adjusted Consumer Price Index
for all Urban Consumers (CPI-U) increased 0.1% in February,
after a big 0.6% increase in January. Over the last twelve months, the
index rose 2.7%, continuing the upward trend that began in July 2016.
This level is above the 2.0% target
set by the Fed, giving them cover for the recent rate increase.
Conference Board's Consumer Confidence Index increased to 114.8 in
from 111.6 (revised) in January. "Consumer
confidence increased in February and remains at a 15-year high (July
2001, 116.3)," said Lynn Franco, Director of Economic Indicators at The
Conference Board. "Consumers rated current business and labor market
conditions more favorably this month than in January. Expectations
improved regarding the short-term outlook for business, and to a lesser
degree jobs and income prospects. Overall, consumers expect the economy
to continue expanding in the months ahead."
The value of the dollar index has
taken a hit this year, which is not surprising, as the world starts to
realize that our President is like the Emperor with no clothes; he's
all bluster and no substance. The good news is that a somewhat weaker
dollar is good for commodity prices and for the earnings of large,
Looking at the chart of
the yield on the 10-year Treasury bond, we can see four failed attempts
to pierce strong resistance at 2.6%. As I've been writing for
the last few months, I
we'll surpass 3% in the near term, like before September, but
I do expect to see rates at that
level by sometime in the fourth quarter.
After trying unsuccessfully for months to pierce
resistance around $55 per barrel, the price of West
Texas Crude has fallen sharply this month as supplies of crude oil are
rising while more production comes on line. My concern that
higher prices would instigate further production seems to be coming
true. And as I wrote last month, that will likely "put a cap on the
price as increased
production would drive the price of oil back down." It looks like that
cap is around $55.
I don't have many new thoughts on the price of gold
except to say that I'll stand by my prediction from last month that
there is "a greater chance of it moving below $1,200 than above
$1,300." I expect the price of gold to stay in a relatively tight band
for most of this year.
The Nasdaq Composite continues to rise to ever
higher record levels a evidenced by the chart below. With a couple of
very brief corrections, it has been almost straight up for the past
year. It may have gotten a bit frothy recently, which could lead to a
period of consolidation, which means a potential buying opportunity.
financial sector has been enjoying large gains over the past year, and
is currently trading at the top of its range right now. The pause in
December and January seems to have been just the tonic needed to
provide the impetus for the latest advance. There is still the
potential that the Trump administration will follow through on
its goal to repeal Dodd-Frank, and perhaps other governance, thereby
releasing banks from some of their regulatory
shackles. In addition, it's clear that the market will
get higher interest
rates, which will result in higher lending
margins, thereby boosting earnings. With all that being said, I remain
I must admit that the housing index has done much
better than I expected, and currently sits right at its record level.
As you were able to see from the housing statistics I recorded earlier,
housing starts, as well as new and existing home sales, are all
growing, even during the slower winter months. This gives hope that the
expansion in the housing market has further room to grow.
Like many of the domestic indices, the index
representing the developed
markets is also making new highs right now. I have to say, I don't
really understand the optimism.
NYSE Bullish sentiment index has remained in a fairly narrow range
for the past year, spending most of 2017 near the top of the trading
range. While I would normally be very wary of this level of
bullishness, the recent steep drop in optimism has allayed those
concerns somewhat. Indeed, it suggests another rally could be
The fact that the price of
remains at absurdly low levels contradicts the falling level of
bullishness shown above. Either way, we're clearly due to have
happen that while again stir volatility. And that doesn't mean a crash
is imminent. It just means that we're likely to experience greater
price swings, up and down, sometime in the coming months.
What I'm Thinking and Doing
I've been wondering recently what the Trump
supporters think of their man these days. It appears to me that almost
everything he is proposing, from trade to health care to the
environment to the arts, will have a very adverse affect on the very
people that voted for him, while helping him, his family and the rest
of the 1% everyone was so upset with. I am simply amazed at how
gullible the American electorate is. He is an empty suit offering
equally empty promises. Sooner, rather than later, everyone will see
him for who he really is. And at that point, the stock market will
begin to suffer.
It's my job to try to discern when that's going to
happen and make the best investment decisions I can in order to not
only protect the wealth of my clients, but also find ways to make it
grow. That means I'm being very cautious these days, allowing cash to
grow and not making any ill-timed investments.
It's been a very quiet month in my business. I
haven't bought anything since I last wrote to you. I'm waiting for a
dip in the market before I put any new cash to work. In the same time I
sold two ETF holdings that had dropped 10% from their highs. Those
trades are part of my philosophy to cut losers quickly and let my
winners ride. As I've said before, there are stocks in my own account
that I've owned for more
than 20 years and have no plans to ever sell. That's the way to build
wealth. The only time I sell something is if it gets to be too big as a
percentage of the overall portfolio, or if the fundamental reason why I
bought it in the first place has changed. Otherwise, I prefer to buy
and hold indefinitely, thereby eliminating trading costs and
News and Notes
For the second month in a row, my newsletter is
being distributed shortly after a major winter storm. I hope there is
no correlation between the two. The warmer weather today is helping to
melt a bit of the residual snow and ice. I hope that now that Spring
has officially sprung, we can look forward to more warm weather, and
the re-appearance of the flowers that had begun to bloom before the
I competed in two open water races in February.
Both were relatively short races of approximately one mile,
and in both cases I earned a third place, finishing behind swimmers who
were 30-years old or younger. While I never like losing, I put up a
good fight and lost to two very good swimmers who are more than 20
years younger than me. If I could learn to swim in a straight line, I'd
have a better chance of winning these races next time.
and her new band Merlin have played together at three
gigs now and are getting better each time. If you live
in, or near, Westchester County, you should join us at their next show
on April 1 when they play in at the Armonk House in Armonk. If you want
information, either check out their Facebook page or email me for the
details. I can also email you before all of her performances if you let
me know you'd like to be added to my invitation list.
After each enjoying their winter breaks in
different ways, the kids are each back at school, getting
ready for the final push towards the end of the school year.
Nola graduates college in just over two months. It's hard to believe
I'm that close to having my first child be a college graduate.
Lily is actively looking for summer jobs in the DC area. Even Ezra is
looking for summer employment for the first time. Kathiryn and I have a
kitten in the house who will be ready for adoption in a few weeks. She
is an adorable and loving little kitten who will make some family very
it for this month. I look forward to
communicating with you in the months ahead. If you have any questions,
please don't hesitate to contact me.
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