Nothing (Yet) Can Stop This Bull
Thinking and Doing
After ascending to a new record in early
August, stocks took a little breather through early
September, falling a modest 2.7%, precipitated mostly by Kim Jong-un,
then Hurricanes Harvey and Irma.
But while the latter devastated the Leeward Islands of the Caribbean,
including Barbuda and St. Maarten (#SXMstrong!), it didn't cause the
destruction forecast in Florida. That precipitated the big rally last
week, as you can see below. No matter what bad news is thrown at this
stock market, it just continues to power upward.
As we look at the chart of the #DJIA so far this
year, we continue to see a very
bullish primary trend leading to a new record high on Friday. The
current price is well above both the
50-day and 200-day
moving averages, with interim support around
21,600. As I said last week, barring any "Black Swan Events", like
further hurricanes, or a missile hitting Alaska, the
rally should continue.
After finally making a new record high in July, the
Transportation Average subsequently fell 7.7% over the next six weeks
before starting an ascent in late August. I would like to see
a little more strength here, and I think it will come.
The Dow Jones
Average surged over the last two months, hitting a new high last week
before backing off a bit as rates ticked higher. Historically low
interest rates continue to benefit this
rate-sensitive sector. There is no reason to get off this train yet.
to the Department of Labor, the
figure for seasonally-adjusted initial jobless claims for the week
ended September 9 was 284,000, representing a second straight week of
large increases. The four-week
average of 263,250 is up about 20,000 from the just a month ago.
Clearly these numbers are impacted by Hurricanes Harvey and Irma.
non-farm payroll employment report in August
was weak, as only 156,000 jobs were gained in the
and 41,000 net jobs were subtracted from the
prior two months. The household survey reported that the unemployment
rate inched back up to 4.4%, while the
participation rate held steady at 62.9. Average hourly wages
collar workers rose to a new high of $22.12 while the average work
week held steady at 33.7 hours.
7.1 million workers were counted as
unemployed, while 1.7 million people remained
unemployed longer than 27 weeks. The seasonally
adjusted number of people who could only find part-time work held at
5.3 million while the number of marginally attached workers
crept lower to 1.5 million. The number of people holding
jobs fell to 6.96 million. All of this resulted
in the U-6 "underemployment" rate holding at 8.6. Nothing in this
report should nudge the Fed to increase their lending rate in
Congressional Budget Office (CBO) estimated that on a net present value
basis, the nation's budget deficit was $109 billion in August, which
resulted in a deficit of
$675 billion for the first eleven months of
fiscal 2017, $56 billion more than the shortfall recorded during the
same period last year.
Census Bureau reported that privately owned housing starts
decreased 4.8% in July to 1,155,000, which is down 5.6% from a
year ago. A lot more homes will have to be built, and sold, in order to
benefit the new home sale market. Given the storms in August and
September, I expect this number to fall.
Census Bureau reported that on a seasonally adjusted annualized
basis, 5710,000 new homes were sold in
a steep drop of 9.4% from June, and 8.9% lower than a year ago. The
the number of homes for sale was 276,000, representing 5.8
months of inventory at the current rate of sales. The median sales
price was $313,700, up slightly from the revised figure from
prior month, and
about $1,000 less than the 12-month moving
average price of $314,617.
National Association of Realtors reported that 5.44 million existing
homes were sold in July, down 1.3% from the
prior month, but still up 2.1% from a year
ago. The estimate of the number of homes for sale was 1.92 million,
representing only 4.2 months of inventory at the current
rate of sales. The median price was $258,300, lower than the prior
month, but still well above
the rising 12-month moving average price of $240,683.
Conference Board reported that its index of Leading Economic
Indicators (LEI) increased 0.3% in July, following a gain of
0.6% in June. "The
U.S. LEI improved in July, suggesting the U.S. economy may experience
further improvements in economic activity in the second half of the
year," said Ataman Ozyildirim, Director of Business Cycles and Growth
Research at The Conference Board. "The large negative contribution from
housing permits, a reversal from June, was more than offset by gains in
the financial indicators, new orders and sentiment."
to the "second" estimate by the Bureau of Economic Analysis,
GDP increased at an annualized rate of 3.0% in Q2 2017, which is
revised up from the 2.6% advanced estimate. It is also up
substantially from the modest 1.4% growth in Q1. This is in
the middle of the 2.1% rate of growth from Q4 2016 and the
3.5% from Q3, but compares well the 1.4%
growth rate in Q2 2016. This figure may push some Fed governors to
advocate for a September rate hike, but I still believe a December hike
is more likely.
to the BLS, the seasonally adjusted Consumer Price Index for all Urban
Consumers (CPI-U) rose 0.4% in August, after a modest 0.1% hike
Over the last twelve months, the index rose 1.9%, getting closer to the
2.0% level sought by the Fed.
Conference Board's Consumer Confidence Index increased to 122.9 in
from 120.0 (revised) in July. "Consumer
confidence increased in August following a moderate improvement in
July," said Lynn Franco, Director of Economic Indicators at The
Conference Board. "Consumers’ more buoyant assessment of present-day
conditions was the primary driver of the boost in confidence, with the
Present Situation Index continuing to hover at a 16-year high (July
2001, 151.3). Consumers’ short-term expectations were relatively flat,
though still optimistic, suggesting that they do not anticipate an
acceleration in the pace of economic activity in the months ahead."
This steady decline in the value of the dollar
index continues to be one of the big stories of the year. This
has had a very happy effect on the bottom lines
of our large, multi-national companies and our tourism industry, as it
has become less expensive for foreign visitors to spend their money
here. If, and when, the Fed hikes rates, it should stem the decline.
While the yield on the
Treasury bond continues to vacillate within a narrow, and declining,
trading channel (teal blue). There was one break of support at
2.1% but it quickly rose back up.
If the trend continues, we could see rates fall back to 2.0%. This
should continue to power the housing market.
price of a barrel of West Texas Crude has bounced nicely off the June
low. It has moved above the trading channel (in purple) and again
briefly broke above $50. I think the price is higher than anticipated
due to fallout from Hurricane Harvey. I would expect lower prices as
production comes back online.
The price of gold finally broke
through resistance at $1,300 as it shot higher,
gaining $160 in just two months. It was, though, unable to crest major
resistance at $1,380. Should tensions in Korea subside, and Mother
Nature stop sending storms our way, I would expect the price of gold
The Nasdaq Composite,
led by the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google),
which took a momentary breather in August, has resumed its stunning
ascent. I would argue it should be renamed FAANNG by adding Nvidia. The
is well above the 50-day moving average. Party on!!
the financial sector continues to be
range-bound, as you can see below, after
failing twice to breach resistance around 25.20 or support
around $22.65. I still believe, as I wrote last month, that
the index is more likely to move above resistance than
fall below support.
Sticky low interest
rates continue to
benefit the tight housing market. I think the decline last month
appears to be nothing more than a buying opportunity. As long as rates
remain near 2%, nothing should stop this rally.
I love this chart. Even as the stock market powers
to ever higher highs, the
sentiment index is actually falling. This lack of bullish sentiment in
the face of record stock prices suggests that the bull has further to
What I'm Thinking and Doing
Honestly, it's been very hard to pay much attention
to the market over the past two weeks as I've been consumed with the
coverage and aftermath of the devastation wrought by Hurricane Irma. We
have strong connections to St. Maarten and are crushed by the toll of
loss and destruction suffered by the island, in general, and so many of
our friends and neighbors, in particular. Please keep the island in
your hearts and thoughts as Hurricane Maria bears down on the Leeward
Islands - #SXMstrong).
Hopefully I'm not being naive, but I don't believe
there will be a war on the Korean Peninsula. I do, though, believe that
there will be a war of words for a while, and that will ramp up the
fear quotient. And that has the possibility of creating instability in
the markets. Should markets decline, again, purely on fears of nuclear
war, I would use that as I buying opportunity.
To repeat what I have said before, I think that
there is little chance that the Fed
will hike rates at their September meeting. There is maybe
a 50/50 chance that they will raise in December. More
important is how they implement their plan to reduce their balance
sheet. Done properly, with complete transparency, the hope is that they
won't spook the markets while they slowly end their policy of buying
treasury and agency bonds. Other buyers will have to step into the void
or rates could spike higher. For now, the markets are calm. We'll see
if they remain that way.
Finally, I'm watching with interest the debate on
the future of our national budget and tax hikes. I really don't pay
much attention to the "noise" until things get much closer to reality.
Any action that has any hopes of being approved by this Congress will
likely be much less drastic than anything being currently proposed. I
would also expect the President to once again reach out to the
Democratic leadership in order to get any deal done. I'll be watching
this debate over the next few months with great interest.
Looking at our portfolios, I raised a substantial
amount of cash earlier this
month by liquidating two positions, one a large media and entertainment
concern and the
other a large international food company. Both had been underperforming
of late, but more importantly, seemed to be on the wrong side of long
term trends. Also in the month, two of my Top Ten positions, Dow
Chemical and DuPont, merged to form the DowDupont Company. Together,
the goliath represents my second largest holding. It will soon split
into three separate businesses, each of which I anticipate holding. As
the third quarter heads to a close, I am very happy with my overall
allocation and anticipate making few large changes over the final three
months, but of course, markets will determine everything I
News and Notes
A few weeks into the new school year, the kids are
plugged in an all doing well. Nola is now living in Washington DC and
has begun her fellowship program with Arena Stage. She is happy with
her roommates and really enjoys her job. Lily has begun her
sophomore year at GW and is in awe of one of her professors. Ezra is
dialed into his senior
year of high school and is trying to decide what colleges to apply to.
This process will likely play out over the next few months.
Kathiryn and I have welcomed a wonderful young lady
named Naima into our home for the next year. Naima came to us from the
French side of St. Maarten, which was decimated by Hurricane Irma.
While the French, and Dutch, authorities strive to rebuild our broken
island, she go to school here, join a local swim team, and experience
her first snow. It will be a very exciting year for everyone.
Finally, Kathiryn and I are also fostering a dog
rescued from the devastation wrought by Hurricane Harvey in Houston.
This wonderfully trained and beautifully mannered buddy named Reuben
has some medical issues to address, then we hope to find him a forever
home. If any readers are looking to adopt a dog, this one will come
That's it for this month. I look forward to
communicating with you again next month. If you have
any questions, please don't hesitate to contact me.
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