Sunday, March 11, 2018

Friday's Moonshot Sends Stocks to Positive for March, Year-to-Date

After losing nearly 500 points the first two trading days of March, the Dow Jones Industrial Average rebounded to positive for the month - and the year - with gains every day excepting Wednesday, when the Dow shed another 82 points. However, the big days occurred on Monday, with a gain of 336 points, and Friday, when the Dow and other major averages put the dismal days of February and March mostly behind them, as the industrials skyrocketed 440 points.

Amazingly, all of this optimism came in spite of endless growling over President Trump's steel and aluminum tariffs and synchronized shouting - from the halls of congress and the canyons of lower Manhattan - about an impending trade war.

Friday's burst higher was credited largely to the impressive February non-farm payroll report, which was a blockbuster, showing 313,000 new jobs created and a 4.1% unemployment rate in the shortest and coldest month of the year, numbers nobody could claim as anything other than positive, the mere hint of good news now capable of sending the stock market back to dizzying, overvalued heights.

Indeed, the NASDAQ closed at an all-time high, though the other indices still have a way to go to exceed the marks set on January 26, though another week like this one, with gains of more than 2.8% on each of the individual indices, would smash the old records on the S&P 500, and get the Dow and NYSE Composite within spitting distance.

How likely that is to happen is a matter of some conjecture, as the FOMC meets March 20 and 21, and is expected to raise the federal funds rate another 25 basis points. This is seen as a headwind to continued expansion, but, with seven days to trade up to the release of the new "policy," the day-trading demons of the financial world will have plenty of time to ramp up and then deflate, choosing either to sell the news or buy into the continuing expansion narrative, even as the bull market passed the nine-year mark on Friday.

There's been no absence of volatility or fluctuation to start off 2018, with massive gains in January, huge losses in February, and possibly an evening out in March. To those who believe the bull is weary, standing on only two legs, the word is "so what," with the punditry claiming - rightly so - that bear markets only last, on average, 12-14 months. What they do not want to discuss is the depth of those bear markets, nor the time taken to get back the losses incurred.

The past two bears, in 2000-2001 and 2007-2009, are good cases in point, using the Dow as the barometer, even though, in the case of the 2000 crash, it was the NASDAQ that collapsed more than anything, which could again be the case should history repeat.

On December 1, 1999, the Dow closed at 11,497.12, and bottomed at 7,591.93 on September 1, 2002, making the duration of the bear market a full 34 months, or nearly three years. It wasn't until September of 2006 that the index surpassed the old high (11,679.07), a period of nearly seven years from peak to peak, a period which seemed like eternity for some. Of course, the bull had been underway since the bottom in '02, and finally apexed in October of '07, blowing through 14,000 before beginning to pull back. (For the record, it took the NASDAQ 13 years to exceed it's pre-crash 2000 highs.)

The ensuing collapse fell just short of catastrophic calamity, as the housing market went bust, along with its many derivative trades, taking all of corporate America down for the count, with the Dow closing at 6,547.05 on March 9, 2009, a date which could arguably be called the end of the '07-09 bear market (16 months) and the beginning of the Fed-inspired bull run to the present, now 114 months old, the second-longest expansion in market history, with gains from the bottom to the recent peak quadrupling the investment, truly an inspiring, incredible, nearly inexplicable accomplishment.

The average of the last two bear markets supplies a possible scenario. If the bear market began in February (which we humans will only know at some later date), the bear would run through March of 2020, or 25 months, the average length of the last two bear markets. It's at least worth consideration, because two years of losses might actually be enough time to clear the decks of much of the excess debt and mal-investment (and there's been lots of it) of the past nine years. Anything longer would be mostly unbearable, not only to Wall Street, but to the average Jane and Joe Americans, who have suffered enough at the start of this century. Likewise, anything shorter would look like another band-aid for the corrupt banking and political system of cronyism and back-handedness toward the taxpaying public.

The mammoth gains over the past nine years are exactly why one should give pause and contemplation to the continuance of the bull market. In market terms, one would be buying at the highs if one would plunge in today, and why would anybody who saw $100,000 turn into $400,000, or a million into four million, even consider adding to positions?

Perhaps the view that President Trump will single-handedly usher in a era of increased prosperity and profit with his blustering "Make America Great Again" push can partially explain any euphoria surrounding the currency of the stock market and it's possible that he might be on the right track, even though he faces many hurdles and obstacles, not the least of which stem from his own party, people in his own administration, opponents on the Democrat side of the aisle and skeptics on Wall Street.

But, it's been proven time and again, Wall Street will play along with Washington if it serves their interest, which is, succinctly, more profits, and higher stock prices. This pits the speculators, gamblers, and traders of the world against the entrenched government "deep state," which cannot stomach Mr. Trump and is prepared to do anything within its power to besmirch and/or impeach him, including sending the stock market into a tailspin, making fundamental analysis of stocks, bonds, and just about any other investment vehicle, not only an exercise in economics, but in politics, as well.

Economic data has shown a mixed, slightly positive picture; politicians are hell=bent on discrediting the president, and, behind it all, an ocean of debt created by the Fed and their cohort central banks needs to be unwound, brought under control, and eventually retired, an exercise only the Fed has recently begun, with the ECB and Bank of Japan too to follow. The wild card is China, where the PBOC has created literal cities built on nothing but debt and speculation.

All that makes for one tricky trade.

Dow Jones Industrial Average March Scorecard:

Date Close Gain/Loss Cum. G/L
3/1/18 24,608.98 -420.22 -420.22
3/2/18 24,538.06 -70.92 -491.14
3/5/18 24,874.76 +336.70 -154.44
3/6/18 24,884.12 +9.36 -145.08
3/7/18 24,801.36 -82.76 -227.84
3/8/18 24,895.21 +93.85 -133.99
3/9/18 25,335.74 +440.53 +306.54

At the Close, Friday, March 9, 2018:
Dow Jones Industrial Average: 25,335.74, +440.53 (+1.77%)
NASDAQ: 7,560.81, +132.86 (+1.79%)
S&P 500: 2,786.57, +47.60 (+1.74%)
NYSE Composite: 12,918.82, +173.81 (+1.36%)

For the Week:
Dow Jones Industrial Average: +797.68 (+3.25%)
NASDAQ: +302.94 (+4.17%)
S&P 500: +95.32 (+3.54%)
NYSE Composite: +360.83 (+2.87%)
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