Epiphany Monday: Have stocks and bonds finally seen the light?
WASHINGTON. Technical issues kept us from posting Sunday. But in our intended Sunday column, updated for today, we wondered if the omens for Mr. Market had turned mildly positive over the weekend. After all, it was (and always is) an auspicious weekend for Christians. Sunday, January 6 was the Feast of the Epiphany. It’s the traditional observance of the Three Kings’ visit to offer homage to the New Messiah. Today, our badly battered Mr. Market could very well be experiencing a long-awaited Epiphany Monday, filled with green ink and the promise of another bull run.
So what’s an epiphany?
“Epiphany” with a capital “E” provides us with the religious meaning of this term, which foreshadows or celebrates a divine manifestation. As in the visit of the Three Kings (aka, the Three Magi) to the birthplace of the Messiah.
But with a small “e,” literary and historical scholars use the term to describe a suddenly clear and surprisingly new understanding of reality. Experiencing an “epiphany” in general is roughly equivalent to, “I have a vision.” The question this week, is, did Mr. Market have an epiphany? Did he experience a vision that investors have yet to see?
A changing market tone?
Mr. Market’s tone seemed to change a bit late last week. Current trading action focused on the positive. To back it up, astonishingly good news suddenly appeared on two fronts. First, the administration touted the 300,000 new jobs American industries created in December. That astonishing number quickly set 2018’s legion of snarling perma-bears back on their collective heels.
Second of all, what in our wondering ears did we hear but the Federal Reserve coming as close as it ever could in its public pronouncements that it might have goofed just a bit by relentlessly jacking up interest rates to fight imaginary inflationary pressures that, at least as of now, have yet to exist. Even better, they proclaimed – hidden in Washingtonspeak of course – that they might not be in any hurry to keep hiking interest rates in 2019.
Add this potentially bullish news to hints that the Chi-coms might be ready to cave on their unfair trade practices. Taken together, these potentially momentum-changing stories could put the brakes on 2018’s year-end sell-a-thon. Prior to this news, the wild selling threatened to spill over into 2019. Now, maybe not.
Seeing Wall Street in a new light
In short, maybe on this Epiphany Monday the economic news is considerably better than we thought, the Apple (trading symbol: AAPL) iPhone debacle notwithstanding.
This would indeed be a welcome epiphany for beleauguered small investors. They’ve been bombarded for months by dire economic and political headlines. Maybe we’ve all been handed a big trash-bag full of fake, way-too-negative market prognostications. Maybe things are a lot better than we thought. Or will be soon.
At least as of the noon hour Monday, Friday’s impressive stock market rally, which was built on last week’s surprisingly good news, continues. The Dow is up nearly one percent, the badly lagging, tech-heavy NASDAQ is ahead nearly 1.5 percent and the S&P 500 is up 1 percent.
The current rally, however long it manages to last, could be a mirage, built on short covering and the kind of positive headlines that cause the massive amount of machine-driven trades to do a 180. But at least we’re getting a break from the relentless gloom and doom that took stocks down to negative numbers to close out 2018.
And about that Federal government shutdown…
One more plus: At least thus far, Wall Street doesn’t seem too worried about what the media relentlessly label as “the longest government shutdown yet.” That’s part of their usual drive to distract the public from all the Trump Administration’s good news, as noted above. Perhaps the media Denialists should experience a reality epiphany.
Truth is that this government shutdown, despite the media hype, doesn’t particularly endanger anyone in the government just yet, although some Federal employees will start hurting soon without their paychecks.
On the other hand, when the partial (about 20-25 percent) government shutdown finally ends, these government employees will still get paid for their extended holiday, which is more than the rest of us working (or retired) stiffs could ever hope for or dream about.
Politics, headlines and stocks
Meanwhile, to recap. Stocks took a vicious beating over the last few months. Stocks may remain mired in the short-term or cyclical bear market that clobbered them last fall for some time. But calls for a recession to begin in 2019 are, at least at this point, premature and probably political in nature.
After all, a nasty bear market that starts later in this year would badly hurt an incumbent president running for re-election in 2020. Which is precisely what the Democrats, the media and indeed many on the Street would dearly love to see. But so far, there’s little evidence as yet that we’re in a great big secular bear market. And if we’re not, that will hurt the Trump Denialists, much to the media’s chagrin.
Meanwhile, U.S. economic growth continues, perhaps at a more modest pace than previously. Numbers will slow this year, as year-on-year profit comparisons will pale when compared to 2018’s Y on Y numbers. But that’s because those 2018 numbers skyrocketed due to the initial effects of Trump’s corporate tax cuts.
Will apparently anemic 2019 Y on Y comparisons matter?
In other words, Y on Y comparisons won’t look very exciting this year, coming off last year’s record, tax-cut-juiced numbers. But this is only due to the fact that we’re now arriving at profit paradigms following last year’s big tax cuts. The fact that numbers will generally be positive while leveling off in 2019 will simply reflect a new, lower tax normal environment.
If the media and their globalist minions keep up the pro-recession drumbeat, things could change for the worse. Many investors and nearly all computerized investing is either numbers-driven or headline-driven. But few investors or machines fully incorporate the intangible effect that investor psychology plays in many investment decisions.
In other words, if the media keep beating on anti-Trump stories or slanting positive stories in a negative direction, this prevalence of headline negativity could become a self-fulfilling prophecy, triggering a recession almost on its own. It’s like fake news creating a fake epiphany and convincing investors to follow.
We have to watch out for this in the months ahead. The elite punditocracy generally gets its grand predictions wrong in the end. (These know-it-alls never experience an epiphany.) But so determined they are to derail the Trump presidency that they’ll even take down American workers, American investors and American companies in order to make that happen.
Call that the Deep State’s new “insurance policy.”
Economic news and strategy this week
Innovative Income Investor has a great Monday summary of the economic new we should get during the week.
“For the coming week there are numerous economic releases–NOTE that some releases may not happen because of the government shutdown in some areas. Monday we have the ISM non-manufacturing report as well as Factory Orders being released. On Tuesday we have the Job Openings and Labor Turnover (JOLTS) report. Additionally on Tuesday we have consumer credit being reported. Wednesday we have the FOMC minutes from last month being released. Friday we the Consumer price index (CPI) being released and the forecast is for a negative number. While normally most of the reports would hold little importance to markets, but we are now at a time when reports are being parsed closer than they had been in 2018, so there is no telling which could set off buying or selling in the common and preferred stocks. We shall have to wait and see how markets react.”
As for us, we continue to hold our mostly preferred stock and ETF-dominated portfolios. we hope to catch at least a short-term bounce that could turn those portfolios positive once again, at least in Q1 2019. That would certainly give credence to Mr. Market’s apparently bullish Monday epiphany. But watchful waiting remains in effect. Mr. Market, and those out-of-control high-speed computers on Wall Street have fooled us many times before.
— Headline image: James Tissot: “Les rois mages en voyage,” or, “The Magi Journeying” (c. 1890),
Brooklyn Museum, New York City. Public domain image via Wikipedia entry on the Three Kings (Magi).
On Epiphany Monday, are the Magi seeing something we’re not seeing?