WASHINGTON, April 10, 2018: Many times in our columns we’ve quoted the lyric from an old song, “What a difference a day makes.” Today is another one of those days. Monday started out great, sustaining a massive rally that seemed likely to eclipse last Friday’s massive plunge. But then, not too far from the closing bell, the Monday rally collapsed with breathtaking speed.
The usual insiders had apparently learned about the highly intrusive FBI raid on the home and office of President Trump’s longtime personal lawyer. The media quickly ran with the worst possible interpretation of this unnecessaily thuggish FBI overreaction. As the news quickly spread, the Friday rally faded into virtual nothingness although stocks did close up somewhat.
Monday’s market action was yet another example of our current absurd investment climate. Headlines, rather than earnings, charts, price-earnings ratios and the like are what generally drive stocks up and down these days. Apparently, rational analysis and reasoned buy and sell decisions are for old investment geezers like this writer.
It took no longer than a single trading day to prove this theory. Or so it seems. Instead of following through on Monday’s disheartening late-inning fizzle by tanking at the opening bell, stocks chose to rocket ahead Tuesday, igniting another massive rally. The reason? Chinese President-for-life Xi says he’ll “open” China wider to international business. That apparently includes dropping, or at least reducing that country’s outrageous tariffs on auto imports. As in auto imports from the USA. So, umm, who started the “trade war?” Nothing to see here, folks, move along.
Meanwhile, we’ll have to wait and see just how serious Mr. Xi is about his sweeping proclamation. Personally, we’ll believe it when we see it.
On the other hand, at least for today, Wall Street’s headline-obsessed individual, corporate and high-speed computerized HFT traders are in a serious buying mood. As evidence, we have Tuesday’s massive rally, the sequel. Will it hold until the close? Who knows?
Currently, the Dow Jones Industrials are up a whopping 440+ points as we write this article, around the noon hour ET. That approaches a 2 percent gain on the day. IF it holds. Current trading action gives odds no better than 50-50.
The broader-based S&P 500 and the tech-heavy NASDAQ are up impressively as well, by 38 and 105 points respectively as of 12:15 ET. For percentage lovers, both the S&P and the Nazz have gained nearly 1.5 percent, at least for now.
The big question is, after nearly two months of wild thrashing, is the big Trump Bull Market about to bestir itself for Round 3? Or if stocks regain their lost momentum, will this actually be Xi Rally #1? Can we finish out today’s massive rally on a high note? Or will it flop again as it did on Monday?
Or worse: Will some scare headline trash stocks either Tuesday afternoon or Wednesday morning? I.e., will a massive Wednesday crash negate today’s massive rally? That’s the current pattern. But these days, who knows? Don’t miss the next thrilling episode on a PC near you.
Again, we can’t emphasize enough that politics and headlines are firmly in charge of this market. Yes, we know, we’ve said this at least 1,000 times since November 9, 2016. But it remains true today and bears repeating. President Trump remains the focus of stocks to the exclusion of all other valuation methods, at least as of the moment. It’s not the way we learned to invest. But there it is. Like Marty Zwieg used to say, “Don’t fight the Fed, and don’t fight the tape.”
Business leaders and CEOs love Trump and love the GOP’s corporate and individual tax cuts more. They love the Administration’s massacre of gazillions of restrictive and utterly stupid Obama-era regulations even more than anything. But it’s still hard to find a single CEO that doesn’t routinely vote Democrat. Almost none of them have any love for Trump at all. As we read somewhere recently, people with money to invest seem to hate Trump and love his policies.
Earth to politically correct rich people: You can’t have it both ways. It’s time to decide.
Until these thick-skulled elites do decide, and until the investing class – that includes you and this writer – internalize this concept, we will likely continue with the current, frustrating, bi-polar market.
So, what’s an investor to do with Tuesday’s massive rally?
In a column to be posted soon, we will explore why we still believe that at least for now, investment dollars are still best kept on the sidelines for now. It’s just too dangerous to make big commitments here. Even though we may miss the explosive beginning of a new rally, it seems prudent to wait for re-entry until we can see clearly over the next hill. Otherwise, we risk getting trapped in another disastrous, headline-risk downdraft.
We’ve had enough of those already.
So instead, let’s enjoy today – if it lasts – and cheer on those damaged stocks and ETFs that still remain in our portfolios. But let’s be careful adding new positions until the headline risk coast is reasonably clear. (That includes Syria.) There are sure a lot more bargains out there than there were at the end of January.
But beware: there might be even better bargains tomorrow if this market heads South once again.