WASHINGTON. US stock averages finished slightly lower Friday. But – wondrous to say – they notched their third straight weekly advance. Why? In part this was due to increasing optimism on the US-China trade front. Remaining gains were likely due to the Fed’s pullback in its aggressive interest rate-hike schedule. Has Great Trump Rally resumed? Has Mr. Market just pushed the RESET button?
On the flip side of last week’s burst of optimism, investor nervousness is on the increase over the latest soon-to-be-incoming earnings season. Major banks start reporting their numbers early next week. Figures could be disappointing.
Mixed market signals: A caution sign for Great Trump Rally enthusiasts
Since signals remain mixed, we’d caution investors to interpret 2019’s first earnings season reports with some skepticism. 2019’s year-on-year (YoY) earnings comparisons will naturally “look” weak. That’s because this year’s earnings will look puny when compared to last year’s big earnings jump.
But let’s remember that 2018 earnings were goosed, big time, by the GOP’s massive corporate tax cuts. These went into effect just last year, and the big rally that got underway in the spring was the result. So take these earnings season reports with a grain of salt. It was a one-time only event.
This year’s numbers, particularly for industrial companies still running all out, will look more like normal numbers. That will disappoint those who can’t understand the completely normal reason why. If too many are disappointed, the Trump Rally will not resume.
Friday’s stock market box scores
At Friday’s close, the Dow Jones Industrial Average (DJIA) declined 6 points to 23,996. The broader-based S&P 500 was virtually unchanged at 2,596. And the tech-heavy NASDAQ dropped 15 points (0.2%) to 6,971.
On a percentage basis, major averages were higher on the week. The DJIA was up 2.3 percent. The S&P 500 Index rose 2.5 percent. And the Nazz moved ahead by 3.5 percent in a tentative attempt to regain at least some of the ground it lost in 2018.
Volume on all exchanges was modest. 802 million shares moved on the NYSE and 2.0 billion shares changed hands on the NASDAQ.
Oil resumed its late 2018 decline, but the drop proved modest. West Texas Intermediate (WTI) crude lost $1.00 to $51.59 per barrel and wholesale gasoline dropped $0.03 to $1.40 per gallon.
Great Trump Rally potential vs fake financial and political news headlines
Great Trump Rally enthusiasts ramped up their optimism in January after 2018’s dismal market close. But even as market averages caught a big thermal, major financial news outlets mounted an aggressive attempt to tamp down some of this January market bullishness. Bearish headline risk still lurks on Wall Street.
America’s massive fake news combine employed its usual tactic. They and their “JournoList” friends launched an endless series of negative reports and headlines. These trumpeted their collective opinion. To wit: the current US government shutdown, partial though it is, will kill the American economy for the rest of the year.
Much of the negative hype is part of the ongoing anti-Trump #Resistance that dominates the TV and cable entertainment sector once known as “the news.” These folks don’t want the Great Trump Rally to resume. It might dampen the current “recession” narrative they and their leftist friends are trying to turn into reality. In time to affect the 2020 national elections. But this fictional scenario doesn’t have to be.
Mr. Market and the “epic” partial US Federal government shutdown
Regarding the partial government shutdown, we must pay attention to corporate reality to discern our own and Mr. Market’s.
Most companies will not, in fact, suffer any consequences from the current Trump-Congress-border wall impasse.
But sooner or later, select companies and industries, particularly those that rely heavily on Federal government contracts, will take a palpable hit if the shutdown continues indefinitely. And, unlike furloughed Federal government employees, government contractors forced to take a mandatory unpaid holiday will likely not get compensated for their time off.
(In fairness, many “furloughed” government workers continue to do their jobs without a current paycheck.)
Subsequently, the companies themselves, particularly those in manufacturing, will ultimately get paid anyway. So, corporate-wise, a prolonged shutdown will affect the contracting sector minimally, aside from those individuals that are now effectively laid-off.
The serious underlying issue here is that the Federal government is becoming a joke – and an expensive one – in the eyes of an increasing number of American voters. And, unlike the far left “news” media, they’re not blaming only President Trump. If anything, they’re blaming Congress even more.
Washington, D.C.: The adults have left the room
The adults seem to have left the room here in Washington, D.C. The phenomenon stretches back at least 25 years or so, and it’s obvious even to the chronically uninterested. When a critical number of Americans finally decide to seriously question why they’re sending so much of their hard-earned money to Washington, things could get nasty.
Furthermore, an increasing number of American citizens have finally begun to notice something. No matter what the politicians they elect promise them, those politicians will turn right around and ignore their constituents once they’ve gotten comfortable in the Nation’s capital.
Congress and President Obama flatly ignored America’s majority opposition to the hydra-headed Obamacare legislation they passed. Likewise, members of both political parties continue to ignore – completely – the significant majority of Americans that back President Trump on building the wall on our southern border.
Something’s got to give. And we’ll see what – or who – that might be, likely before the end of Q1 2019.
This border issue isn’t affecting markets nearly as much as pro-open-borders analysts think. But this could change the longer the asinine impasse on a common-sense border protection measure remains in limbo. We’ll just have to wait and see.
Investors still stuck in neutral
Although we’d like to go bullish, our position on the market this week remains neutral. Technical signs that the recent bear market – and yes, it is a bear market – has ceased to exist are not yet evident. Neither is the latest re-incarnation of the Great Trump Rally.
Some industrial sectors will certainly slow this year. Indeed they must, since we didn’t get a fresh, new tax cut before the GOP House majority melted away.
Worse, the Pelosi-Schumer regime will look to impose new taxes on businesses and individuals in 2019. The President’s veto pen should beat this nonsense back. For now.
Possible investment ideas
Specific investments in this environment? SDOG, the broad-based dogs-of-all-investment-sectors ETF, which we nipped into last week gained nicely from the start of the week. We’ll continue to add shares, bit by bit, on down days for the SDOGs.
Our wretchedly large position in Allergan (trading symbol AGN) got a welcome boost last week, although we’re still well behind in that one. Meanwhile, our substantial tranche of high-dividend preferred stocks moved sharply upward last week after the Fed signaled it was backing off on interest rate hikes. At least for now.
But we’ve got a new week incoming, and the financial media are ready with another raft of scary headlines, since these sell ads. But we have to be aware at all times of the collective mood shift such negativity can cause. That’s why we remain reluctant to recommit to this market in a big way. A resumption of the Great Trump Rally is not in the bag. Yet.
Cash remains king until proven otherwise. Good luck to all of us in the coming week. And stay tuned.
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