WASHINGTON, December 22, 2016 – As we slide into what’s generally the slowest trading season of the year—the Christmas-New Year’s holiday break—stock picking becomes tricky.
Low volume days like the ones we’ll be experiencing until roughly January 2, 2017, are tricky and treacherous and generally not a good time to make major investing situations. It looks like Santa Claus is finally focusing on his real reason for the season, leaving markets to fend for themselves.
However, what active traders and investors can do this time of year is take a look at their portfolios long and hard with an eye toward what’s likely to be a very different investing environment in 2017 and beyond.
That’s because we’ll all be seeing what happens when a radically new kind of sheriff swaggers into Dodge City—aka, Washington, D.C.—vowing to drive out the political gunslingers and other assorted hombres who are seen to be (and likely are) the leftist ideologues and other assorted opportunists who’ve been bankrupting the vast geographical majority of the United States since January, 2009.
Whether the incoming 4-year Trumpathon succeeds or fails, an entirely new kind of Administration is coming to Washington. Yes, Congress may succeed in thwarting more than one of the new president’s cabinet and cabinet-level picks. But in the end, he’ll get most of what he wants: primarily a pantheon of business CEOs and no-nonsense Congressional picks, many of whom are even more eager to “drain the swamp” than the President-elect.
Which gets us back to how the incoming Administration is likely to affect portfolios and investment choices, particularly in 2017, its yet-to-be-revealed transition year. Ever since its brief blot of red ink at the opening bell on November 9, the stock market has risen like a successful NASA rocket launch and has remained in a strongly upward trajectory with pretty much only the briefest of pauses before resuming its bullish move.
Aside from stocks in the pharmaceutical and defense sectors, both of which have come under intense Twitter attacks from President-elect The Donald, and aside from some palpitations in the tech sector (whose CEOs almost universally opposed America’s next CEO) stocks have been partying hard.
The bull move was aided and abetted by the (perceived) steel backbone of OPEC with regard to oil pricing and production and by a perception that the Fed will continue to tighten interest rates, thus helping out the beleaguered financial sector after its long, 8-year drought.
But, as markets drive slightly down to sideways, where will they go next? More than ever, thanks to the headline-driven algorithms of the high-frequency traders (HFTs), it’s headlines and perceptions that will drive day-to-day trading in 2017 and not necessarily the standard reference points of earnings per share and positive or negative chart patterns.
The positives for the financials are likely to continue in the New Year. But even now, financial stocks are in at least a mini-correction, having gotten a little ahead of themselves in what still remains a sub-standard interest rate environment for that sector. We suspect more of a correction in January, which could offer a buying opportunity for the market’s next leg up.
CNBC’s Jacob Pramuk observes that J.P. Morgan Chase CEO Jamie Dimon, the banking sector’s titular spokesman, thinks President-elect Trump
“… should not be vilified for putting business people in his White House and that the choices provide a ‘good reset’ for how businesses are viewed.
“After a campaign filled with attacks on the wealthy and powerful, the president-elect has picked three alumni of the powerful financial firm Goldman Sachs, several billionaires and two chief executives of major American companies for his administration. Trump has defended his picks, saying they know how to create jobs.
“Dimon, who will head Trump’s Business Roundtable, said in a Bloomberg interview published Thursday that he was “dead wrong” before the election by thinking Wall Street would have a hard time getting into the next administration. He Clinton. Now, he says he is optimistic about Trump’s business-heavy administration.”
Businesses, and particularly those in the banking and investing sector almost uniformly supported Clinton in the recent election, and most are instinctive liberal Democrats. But they are also pragmatists who see Trump’s allegedly shocking victory could actually end up being the perfect antidote to Obama’s 8-years of ideologically inspired entropy.
This could ignite the animal spirits in the financials, which, in turn, could be just what’s needed to re-float America’s economic and business armada. And the financial sector could provide the fuel—something it used to do—earning top execs the swell bonuses they’ve been missing for so many years. No wonder Dimon has turned over a new leaf.
Once the presumed party really gets started, pharmaceuticals will recover at some point as well. (In fact, they’re looking pretty happy in Friday’s pre-Christmas trading action.) But we’ll probably need a clearer signal on where the Obamacare monstrosity is headed before we get a real all-clear signal for these stocks.
On the other hand, trade issues, particularly those involving China, have been a concern. Trump has been regularly sending nastygrams to the Chinese leadership via Twitter, raising the level of nervousness, particularly among globalist-centric U.S. multinationals. They’re right to be concerned about an impending “trade war.” But they should know better.
Trump is a real-estate mogul accustomed to negotiating dozens and dozens of interlocking deals each year ranging from subcontractors to trade unions. If you start out by offering “reasonable” contracts and prices to these companies and individuals, you’ll lose your shirt on a new investment or new building, as Trump, in fact, has on several occasions. As a result, you learn to start jawboning with these people in advance of the first sit-down, intending to alarm them in the process with the intention of forcing them to be more reasonable in what they’re demanding before the real negotiations begin.
This is what Trump is likely doing right now with China, the defense contractors and others. He and The Deplorables are right to be concerned with the absurdly one-sided trade deals the U.S. has negotiated in recent deals.
Burdened with far too much noblesse oblige by successive Washington administrations, these deals, including NAFTA, have been far too generous to America’s trading partners, leading to a mass-loss of American jobs, particularly in the trades and in industry. This needs to be fixed, and taking a hard line on current agreements that have destroyed families and lives in Flyover Country have to be revised. They can be repaired via hard negotiations and, frankly, threatening a trade war is a good first offer, helping to ensure that a real trade war won’t happen in the end.
That’s perhaps one reason why another CNBC Friday headline is absurdly hysterical:
Carl Icahn may have flashed a massive warning signal about Donald Trump’s economic plans for China
Icahn, soon to be at least an informal business advisor in the new administration, is quoted as being worried about this. But even that is a negotiating position, part of the preliminary dance call for what promises to be a critical but complex issue in 2017 and beyond. UPDATE: Memory hold alert: CNBC has since changed its internal head for this article.
In general, this is the kind of news we’ll need to focus on early in the New Year. This kind of macro, political environment will be critical in determining 2017’s winners and losers. As we get focused in the areas and sectors involved, we’ll begin very quickly to get a clearer picture of how to start making money in a world where everything, in the words of W. B. Yeats, has “changed utterly.”
In the meantime, here’s wishing all our readers the Merriest of Christmases and the Happiest of Hanukkahs. Since Wall Street is closed for business on Monday, we’ll be back to look at more 2017 investing issues next Tuesday, December 27.