WASHINGTON, March 31, 2017 – We skipped our pair of columns on Thursday simply because there was little to say about this week’s market action that we haven’t said already. Aside from a nasty downdraft followed by an equal and opposite downdraft, from our perspective, stocks have simply been meandering with no sense of direction at all.
The McClellan Oscillator is now sharply above the zero line, suggesting that the worst of the short-term downdraft may be over. For now. However, there’s no indication that it won’t begin again.
The DJIA closed out the week’s trading action Friday off 65.27 points (-0.31 percent), the S&P was off 5.34 points (-0.23 percent), and the tech-heavy NASDAQ was down 2.61 points, a mere -0.04 percent. The latter has been strong all week, so likely needed to take a breather.
Regarding investment news, CNBC and the financial media in general like to blame everything bad on the alleged ineptitude of President Trump. But they’re aiming at the wrong target. If there’s stupidity in Washington right now, it locus is the U.S. Do-Nothing Congress, not the White House, which, if anything, is trying to do too much too quickly.
For that reason, Trump is literally being forced to continue, bizarrely enough, with Obama’s tradition of governing with a pen rather than with a supposedly favorable Republican Congress that absolutely cannot get its act together. This isn’t killing the market right now, but it is putting a question mark on individual and institutional investment plans and is causing many corporate insiders to lighten up on shares of their own companies
Yet a great deal of what’s going on with stocks these days has more to do with a pair of unrelated elements, at least at the moment. First of all, now that the latest Fed rate increase has been choked down—it didn’t take much time—and now that the Brexit appears not to have been the end of Life As We Know It, markets are fixated on
- The price of crude oil; and
- The odd but somewhat predictable rush of investors back into bonds and bond equivalents
As for oil, we seem to be in an oversupply situation right now, as has been evidenced by the month-long slide in the price of WTI and Brent crude throughout much of March. However, that slide reversed a couple of days ago, and WTI is back up over $50 bbl. once again, while somewhat more expensive Brent crude is now at $50+ bbl. Where’d that come from?
Out of stocks and into bonds? We keep reading that this is true. Problem for us is that we’re relatively insensitive to this, given that we always try to keep a good mix of both in our portfolios, which still hold a few bonds we bought at bargain basement rates in March 2009, the last time the world was for sure going to end.
That said, we have been trying to sneak into a couple of high-yielding CEFs (“closed-end funds” that trade like stocks), and they keep going up. Frustrating, as our general rule is “Don’t EVER chase an investment on its way up.” The reason these high-yield CEFs keep going up, obviously, is that investors at least for now are buying them hand over fist. So maybe the notion that at least a determined number of investors large and small are bailing out of stocks and into bonds has some truth in it.
As Friday trading action grinds to a close, we’re frankly worn out by a week that’s been a whole lot of nothing as far as we’re concerned. We continue to pull in profits like we never have before, which is a delight. But extracting further profits out of newer investments in the April-May timeframe looks like a dicier project. So we remain cautious and hold a fair bit of cash right now. It feels good, and sometimes that’s your best investing barometer of all.
Enjoy the weekend.