WASHINGTON, July 11, 2017 – We’ve recently returned from a long weekend in West Virginia where we attended – and are currently reviewing – a batch of new and almost-new American plays at the Contemporary American Theater Festival (CATF) in Shepherdstown.
Our recent jaunt gave us a chance to clear our investing heads and take a fresh look at how stock and bond markets have been behaving thus far this summer. Although the occasional fantastic rally occurs during typical summer trading doldrums, markets often mark time at this point – or even sink spectacularly. Trading minds are often elsewhere.
While July often gifts nifty surprises to the bulls, more than occasionally it fails to impress. But August can get really nasty, terrifying the bulls while making the bears as happy as they are when wading into a fast-flowing, salmon-infested river that’s target rich and tasty as all get-out.
Combinations of dramatic moves punctuated by boring, meandering eddies are what, in Wall Street parlance, are known collectively as “seasonality.” In general, the entire period from roughly May through the end of September, give or take, is regarded as “unfavorable seasonality.” That’s why many traders and investors lighten up on their holdings after the April 15 IRS deadline and don’t start placing bullish bets again until late-September or early October.
Hence, the “Sell in May” mantra. In this already-underway Summer of 2017, markets seem stuck on the horns of this classic seasonality dilemma. True, stocks on the whole are still nicely up on the year, courtesy of that monster Trump Rally. That impressive bull move launched the morning of November 9, 2016 and steamed robustly ahead before sputtering into stasis sometime in March 2017.
Averages have occasionally posted new highs even after that early 2017 peak. But these record-breaking gains, while much loved by financial headline writers, haven’t been all that impressive. While the current market doldrums could be a fakeout, the current action may also signal a market pause or even a market peak.
After all, the “repealing and replacing” of Obamacare long-promised by the Republicans is all but dead due to the Stupid Party doing its usual thing while fecklessly opposing their oddball but beloved (by the Deplorables at least) President. Ditto the “YUGE,” stimulative tax cuts promised by President Trump, also dead at least for now. Trump is still pushing hard on both issues, but the Republican-led Congress consistently fails to keep its collective eyes on this major pair of fiscal balls. (Pun may be intended).
The result? Given investor expectations that both Obamacare replacement (or repair) and epic tax cuts would be a given in the first or second quarter of 2017, the market has apparently concluded that neither will happen in 2017. Hence, the expected growth explosion has not occurred and may not occur at all, cooling the fervor of Wall Street’s remaining short-term bulls.
That’s why stocks in virtually all sectors currently appear either fairly valued or overvalued, meaning there’s no compelling reason to buy anything unless a miracle happens tomorrow on Capitol Hill or the markets experience a nasty 20 percent correction. The latter would create the kind of juicy bargains that get the bulls back into the action en masse.
While stocks seem fairly happy right now with modest moves up and down –a peaceful “sideways correction” – markets could also be overdue for at least a 5 to 10 percent pullback here.
Near-term, the Fed seems to speak with forkèd tongue, implacably raising interest rates despite our near-zero current rate of inflation. Meanwhile, exogenous political events – like the murderous ravings of North Korea’s increasingly dangerous Boy Hitler-wannabe, and the implacable and equally dangerous machinations of Iran’s Mad Mullahs – keep the world and its investors on edge, though they haven’t helped gold and silver much lately.
Ditto the ongoing attempt at a not-so-silent coup against President Trump right here in Washington. That puts our President – and he is OUR president, Soros-paid “Antifa” thugs to the contrary – in a weak position to confront existential threats. But Deep Staters and #NeverTrump Republicans could care less. (Note: Remember this in 2018.)
Stocks are said to climb a wall of worry. But sometimes, investors can get so supremely worried that they stuff their investment dollars into mattresses or their moral equivalent. There’s some evidence this is happening now. If that’s the case, stocks won’t begin soaring again until some of the world’s Byzantine political risk factors are decisively addressed.