Wednesday was a historic day for the markets, as the Dow pierced the 20,000 level to close at yet another all-time high.
Things calmed considerably Thursday, as the Dow finished the session with a small gain. More importantly, that 20,000 mark remains firmly in place, as we didn’t see any big programmed selling after eclipsing this psychologically significant level.
In yesterday’s Afternoon Edition, “Dow Celebrates 20,000 … Now What?,” we wrote about the impressive — and very rapid — bull run that led up to the historic close. This run has, of course, been largely inspired by the optimism over the pro-growth Trump/Republican agenda.
In that piece, we also asked if you thought we would see more upside in stocks going forward, and/or if you were worried about potential bubble-like conditions developing on Wall Street.
Well, as I expected, you sounded off with your excellent thoughts.
Today’s issue is all about those thoughts, and about what you think of what’s happening in markets now — and what is likely to happen on Wall Street going forward.
So, readers, take it away…
We all know that nothing ever happened until it ‘happens’, that is 99.9999% of people are unsuspecting (mostly mainstream media journos) and when it ‘happens’ (whatever it is that has happened) it comes instant and wide-reaching ‘news’ and people ‘everywhere’ are wondering how it could have ‘happened’. That is why we have stock market crashes, bank failures and other nasty things. So the answer is … stay awake! Read subject matters like yours and other peoples’ daily blogs. Then one can formulate one’s own policy.
Brad response: Stay awake, indeed. Great advice, Ron. And, thanks for including this publication in that tool shed to stay awake, as that really is one of the goals of our daily conversations.
The market now is in a bubble, like housing. Housing is having issues with affordability, now stocks are the same way. When the music stops, there will be a lot of people left standing.
Eleanor A. writes:
As you mentioned the market climb seems to be based on optimism. This optimism will most likely continue for a while until some news item puts a crimp in it. Sooner or later however, there will be a fall. The trick is to know when. I think most of us are not being very realistic!
There was a stock market bubble even before the election and the bubble has grown bigger since the election. Trump’s protectionist tendencies are a threat to the market and the economy. Must we return to the days of the Smoot Hawley tariff? That seems to be what Trump and the Republican Congress want. That protectionism will disrupt global supply chains and make goods much more expensive. That is not a solid foundation for stocks and was not the case in 1931.
Brad response: It’s easy to see how stocks are out ahead of themselves right now, as this rally has been mostly about the optimism surrounding the new administration and the Republican government.
At some point soon, we will need to see actual progress on issues such as regulatory rollback (which we’ve already seen), fiscal stimulus, Obamacare repeal/replace, and most importantly, a corporate tax cut.
On the corporate tax front, one reader, coincidentally also named Brad, disagrees with me.
Reader Brad writes:
I don’t see any benefit to lower corporate tax rates as the money will most likely be used for more stock price reengineering. And that is a result of the money in the economy brought in by the Fed that fuels stock price growth and over-valuation. Until we can change the Fed and Fed policies, all that performs out there is merely a charade.
Brad response: I agree that the Fed’s easy-money policies have helped fuel a lot of buying in equities, buying that might not have otherwise happened had it not been for those rock-bottom rates. However, I do think a corporate tax cut would be very good, as it would immediately contribute to the bottom lines of corporations, and bump up their EPS significantly. If that happens, then current high valuations on stocks in the S&P 500 will be justified, and that will give fundamental investors reason to buy in.
Let’s keep the conversation going. If you want to sound off on this issue, or on any of the issues we cover in the Afternoon Edition, then simply leave me a comment on our website or send me an e-mail.
The Dow opened above 20,000 for the first time and notched another record close at 20,100.91 (+0.2%). The S&P 500 and Nasdaq saw mixed days and closed about a point lower each.
• The U.S. budget deficit for 2017 is forecast to come in at $559 billion. It was $587 billion in fiscal 2016. However, the Congressional Budget Office sees the deficit growing to $1.4 trillion by fiscal 2027, similar to 2009, thanks in part to surging boomer retirements.
• Charter Communications (CHTR) advanced as much as 10% intraday on hints of possible deal with Verizon (VZ). Meanwhile Comcast (CMCSA) reported an earnings beat, a 15% dividend hike and a 2-for-1 stock split. The latter cable company’s stock closed 2.8% higher.
• Kraft Heinz (KHC) is developing a new line of food products with Oprah called Mealtime Stories. KHC gained 0.6%, but Weight Watchers (WTW) — in which Oprah owns a stake — fell 0.6% after being up 2% right after the announcement.
• Alibaba (BABA) is buying Dallas-based MoneyGram (MGI) in an $880 million deal. The international money transfer and payment services company saw its stock surge close to 9% in today’s trade.
• The Mexican peso dropped after President Enrique Peña Nieto of Mexico canceled a scheduled meeting with Donald Trump. Trump has called for a 20% tax on imports from our southern neighbor to pay for a border wall. The iShares MSCI Mexico Capped ETF (EWW) fell 2.3%.
• What does Trump eat between meetings and tweetings? President Obama’s signature snack was almonds. Lay’s potato chips and Doritos may soon find themselves high atop the White House shopping list. These items are made by Frito-Lay, whose parent company is PepsiCo (PEP), whose shares dipped slightly today.
Good luck and happy investing,
Uncommon Wisdom Daily