May Day incoming. Stocks and bonds in the week ahead

Markets appear to have misjudged the Republicans' ability to move their own much ballyhooed agenda despite controlling both the legislative and executive branches of the government.

The Yellow Kid weighs in on Capitol Hill inaction. (Out of copyright image modified by the author)

WASHINGTON, April 30, 2017 – Investors took some money off the table Friday, cashing in on a generally positive week of trading after a month of essentially flat action. Traders seemed focused on a serious of imponderables, including the French elections, crude oil supply and price, the difficulties of getting Congressional consensus on key issues like Obamacare repeal and replace and revisions in the tax code that include dramatic tax cuts.

The increasingly insane goings on in North Korea haven’t added to investor ease either. This situation will remain a headline-risk overhang as May progresses.

Another negative: The informal yet often true adage that in terms of stock trading during the calendar year, it’s best to “sell in May and go away.” Market sentiment seemed to tilt in that direction in trading this past Friday, but trading in technology issues remained strong.

While many tech stocks, including Apple (symbol: AAPL) struggled, Alphabet (GOOGL) and Microsoft (MSFT) were strong. Intel (INTC) tried to add good cheer, reporting excellent earnings. But the giant chipmaker ended up in the red anyway by COB Friday.

Despite the seemingly never-ending Obamacare snarl in Congress, the frequently market moving healthcare sector finished on a plus note, as did major oils in general, as crude – weak all week – closed on a mildly positive note Friday.

Holding things back, however, were stocks in the important financial sector, a sector that until recently had been strongly leading the post-Election 2016 Trump Rally.

It’s entirely possible that, even after their long journey into the wilderness as a result of the Great Recession and the ensuing, draconian Dodd-Frank overkill legislation, stocks in the financial sector got ahead of themselves, anticipating a considerably better economic environment under Donald Trump than the one the country endured during eight bitter years of no-growth Obama fiat socialism. That will likely be the case over the next four years.

As for now, markets appear to have misjudged the Republicans’ ability to move their own much ballyhooed agenda despite controlling both the legislative and executive branches of the government.

While the GOP experienced an exhilarating “it’s about time” moment in the Senate’s masterful maneuvering that resulted in the appointment of a conservative justice, Neil Gorsuch, to the U.S. Supreme Court, it’s still business as usual in the fractious house. “Moderate” Republicans continue to behave like Democrat-Lites while crusading conservative Republicans would always much rather achieve ideological purity than pass even slightly-less-than-ideal legislation.

Note to conservative ideologues: We’re with you, but remember: Rome wasn’t built in a day, dudes. The Democrats took over 40 years to wreck this country and its institutions. Why do you think you can fix it all in a few weeks?

This bizarre yet stubborn ideological impasse amongst Republicans is seriously holding up work on healthcare legislation, tax reform and a host of related issues. As a result, the anticipatory rally in the financials has stalled, at least for now, as the great promise of quick action on these key issues looks as like it may still be at least a couple quarters in the future.

But without looser regulations along with healthcare rationality and improved tax code certainty – not to mention anticipated higher interest rates and at least some noticeable inflation – financials are likely to remain in stall mode for now.

More key stats of interest to investors are due Monday, namely, information on March Personal Income, Personal Spending and Construction Spending.

We intend to keep our own powder dry for now and wait to see what happens early this week. But we’re inclined to respect “Sell in May” at least to some extent and not get too heavily invested until and unless Congress starts to move some serious legislation and clear up some of the uncertainty that’s lately been damping investor confidence.

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