Trading Diary: The Wall Street week that was

Stocks and bonds trade up and down this week on generally earnings news, as the unusual and intermittant 2017 summer rally nears its peak.

Palace of the Governors, Santa Fe, New Mexico. (Photo via Wikipedia entry on Santa Fe, GNU 1.2 license)

SANTA FE, N.M., August 4, 2017 – Greetings from (mostly) sunny Santa Fe, New Mexico. We’ve traveled to this most-picturesque of American state capital cities this week to view and review the 5 productions that, taken together, comprise the 2017 season of the Santa Fe Opera.

But that’s not why you’re here. Our apologies, but given our travel schedule, we haven’t had a chance to weigh in on this week’s market action. We’ll provide a general recap today. Early next week, after we’ve adjusted back to Eastern Time from Mountain Time, we’ll resume our irregularly scheduled financial broadcasts right here and in our companion column. (Our opera reviews will be appearing in CDN’s Entertainment section.)

For us, at least, there hasn’t been a great deal of market action to report while we’ve been traveling through America’s great Southwest. The tech-heavy NASDAQ has continued to be weak, although it was goosed, at least for a time, by Apple’s (symbol: AAPL) swell earnings, which promptly put those Apple permabears back in hibernation. For now.

Even so, tech still seems toppy to us, and could be in danger of another sharp correction before the fairly typical autumn tech rally gets underway. Such a rally, of course, will depend on sustained positive earnings, so mark this tech episode “To Be Continued.”

Financials have been wandering around aimlessly, wondering what the Fed really intends to do about interest rates, given the (up until now) lack of discernable inflation, at least in terms of the Fed’s set of measurements. Long term, they remain a good investment for those who are patient, particularly long-beleaguered Bank of America (BAC), in which we hold a tiny position that we’d like to increase on any significant price dip.

Given that the Fed seems determined to commence dumping its huge bond portfolio in the September time frame, we’re not sure if we should prepare for a September rate boost announcement.

While we’re not degreed economists (and don’t play such roles on TV), it’s easy to see that a certain amount of bond dumping could, in and of itself, lead to gradual interest rate increases. Mass Fed bond-selling effectively takes money out of the system, which can and often does lead to interest rate increases. That’s because “lendable” money tends to get scarce.

This is an overly simple analysis of what might start happening to money supply and interest rates this fall, but we suspect it’s a more accurate prediction of the near-term market future than you’re likely to get from that Pulitzer Prize-winning jack-of-all-trades, the New York Times’ fake news champion, Paul Krugman.

Trading Diary

Snarky comments aside, our own portfolios have had their ups and downs this week. Plugging into “The Force” of this apparently never-ending summer rally in stocks – particularly those in the Dow Jones Industrial Average – we continue to note major divergences.

Our portfolios are heavy on mid-to-smaller companies and very heavy indeed on income-generating preferred shares and ETNs (exchange-traded notes, aka “baby bonds.”) It’s these and other stocks regarded as “financials” – including banks, insurance companies and REITs that are primarily involved in funding rather than owning real estate – that have been perceptibly weakening this week.

This weakening trend, which is by no means universal, could be another clue that somehow, somewhere, interest rates are going to sneak upward in some way, shape, or form. For that reason, we’re considering the wisdom of paring down this sector of our portfolio a bit.

In fact, we’ve already sold our modest position in property-owning REIT Colony NorthStar (CLNS). It’s been a good short-term investment for us, giving us a high-yield of rougly 8 percent, plus a capital gain of nearly 13 percent. But the shares seem toppy right now, so they’re gone. We may buy in again later if the market weakens significantly.

In other portfolio sectors, our most notable surprise came today with our big position in Allergan Convertible Preferred A shares (AGN/PRA, your broker’s symbol may vary) taking a big hit.

Why a surprise? Parent company Allergan (AGN) reported what, to us at least, were fabulous earnings Thursday, topping estimates considerably. That was a tonic for AGN shares Thursday, and indeed, the company’s shares had been trending higher for quite some time, due no doubt to the usual insiders trading on secret earnings news they had already learned — not uncommon today as SEC insider rules are relatively un-enforced.

But today, Allergan, as well as its semi-attached convertible preferred shares took a beating. On the surface, this seems irrational. But it’s become almost commonplace for the machines to generate massive sell orders after quarterly earnings reports, particularly after the earnings are good, for some reason.

We figure that’s what’s happening with Allergan and its convertible preferred shares today. Irritating, but these shares will likely claw back from this hit, albeit gradually.

That’s about it for this week from Wall Street and Santa Fe. We’ll be back in the nation’s Fake News Capital, Washington, D.C., early next week, at which point our columns will start showing up more regularly again.

In the meantime, it’s another “Night at the Opera” for us, as we reviewer types take in the formal world premiere performance of U.S. composer Mason Bates’ brand new techno-orchestral opera, “The (R)evolution of Steve Jobs.” Here’s hoping this unusual and innovative new effort proves “insanely great.”


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