Saturday, December 10, 2016

Stocks Continue Surging Into Year-End; Fed Rate Hike Baked In, Unsubstantial

He said, "Call the doctor. I think I'm gonna crash."
"The doctor say he's comin', but you gotta pay him cash."
They went rushin' down that freeway,
messed around and got lost
They didn't care they were just dyin' to get off

--Life in the Fast Lane, Eagles, 1976

Stocks careened higher on Friday, finishing off a week that saw increased investor buying virtually across the board. It was the best week for stocks, especially on the Dow, since the week immediately following the US elections, an odd scenario for analysts and talking media heads who predicted turmoil and collapse if anybody but Hillary Clinton was elected president.

Since the election of Donald Trump, we now know that what emerges from the mouths of Wall Street psychopaths and media slaves is usually incorrect, politically driven and nine times out of ten wrong. What we still don't understand is why the same people are relied upon for their opinions, having been proven completely wrong over and over again, the best examples of this kind of nepotistic following being seen regularly on the financial networks, Bloomberg, Fox, and notoriously, CNBC, which has its own designated cheerleader, Jim Cramer.

How could all of these pundits and overpaid professionals have gotten it so wrong? Easy. The chances of stocks advancing or declining is almost always a 50/50 proposition, but, anybody reading the tea leaves from leftover elections would have known that a Republican president following a lame duck incumbent makes for a major bull market (that's made up, but it's probably true anyhow, and, in the age of "fake news" all one needs is a headline and story, right?).

Maybe people with money think Donald Trump's various positions on trade, immigration, wages, borders and culture will usher in another gilded age of American exceptionalism. For the most part, anybody with half a brain still in working order would welcome such a change. More than likely, following the initial post-election stock surge the rest of the advances have been driven largely by herd behavior.

It should be widely accepted, though it isn't, that stocks are valued extremely high, but the right thing is that bonds have been collapsing over the past five weeks, at the same time stocks have been rising. That's not your run-of-the-mill pair trade, but it is imaginative. As bonds fall, yields rise, making them more attractive as safety plays. In the meantime, with interest rates largely remaining at bargain basement levels, stocks have continued to be the investment de jour.

If there's a cloudy lining inside the silver cloud of stocks, it's that a correction is long overdue. However, bears and shorts have been saying that for the better part of the past four years and it hasn't happened. Instead, we happen to be in the midst of a massive valuation expansion. Whether or not individual stocks are good or bad investments presently does not seem to matter. There's an explosion of cash coming into the market, the same cash that was being hoarded pre-election. Once that money is exploited and exposed, the intensity of the rally should subside, but probably not until the calendar turn to 2017, the attractiveness and continual pimping of the "Santa Claus Rally" expected to be the main driver over the remaining weeks of 2016.

So, if a crash is coming, January's your huckleberry, or, right after the Fed raises the federal funds rate next week, which has evolved from a possibility to a near-certainty. The Fed and their one quarter of one percent hike in overnight lending is more a canard than a reality. Only the monumentally stupid or disconnected will suffer on a small rate increase. It's so tiny that almost nobody will notice. Certainly, it's not the kind of event that will cause a run, a panic, a rout, so the best action for next week is probably inaction.

Crashes and sudden downturns in the market normally come from out of the blue, caused by forces to which nobody (or only a select, ridiculed few) had been paying attention. If there's going to be a turn, the most likely causes are going to come from Japan or China or Europe, possibly even Brazil or another major portion of Latin America. More likely is that after Mr. Trump is inaugurated, US markets stabilize and places such as those mentioned above suffer. Such is the way of the world. There will be winners and losers. If America is going to be "great again" other countries are going to be not so great. The market is economics in motion and the chances for a crash in America are minimal over the short term. Longer term, dependent on too many factors to delineate here, corrections and crashes are bound to occur. The truth of the matter, is that the usually-wrong analysis from Wall Street is actually right on this account: if your time horizon is 20 or more years, crashes and corrections are buying opportunities and nothing more. The world won't end tomorrow or the next day, or the next month or the next year.

Thus, the outlook for stocks remains fairly solid, albeit a bit on the high side right now. Since the election, the Dow is more than 1400 points higher, a gain of nearly eight percent. That's a pretty healthy gain for five weeks and something that should be taken into account whatever investment decision one is making or about to make.

Friday's Closing Quotes:
Dow: 19,756.85, +142.04 (0.72%)
S&P 500: 2,259.53. +13.34 (0.59%)
NASDAQ: 5,444.50, +27.14 (0.50%)
NYSE Composite: 11,191.79, +41.83 (0.38%)

For the Week Ending 12/09/16:
Dow: +586.43 (+3.06%)
S&P 500: +67.58 (+3.08%)
NASDAQ: +188.85 (+3.59%)
NYSE Composite: +353.21 (+3.26%)

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