Quote of the Day -- And -- Protectionism is a Bipartisan Affliction...

Last Tuesday we explained why the market aggressively sold off (after opening with strong momentum following Monday's 660 point rally in the Dow) on news that Washington was about to take serious measures to limit foreign capital investment into the U.S. economy. 

More On Why We Like Financials Right Here

On March 13th we devoted our weekly message to why we like financials right here. Sharing our view of a given sector's prospects serves to accomplish two aims: One, it helps clients understand what they see us doing within their portfolios and, two, it can offer some insight into general economic conditions -- as each sector's prospects are largely dependent upon the macro setup.

The Trade Deficit Was Perfect Last Month!

Now hear me out, I'll keep it short:

While this morning's trade report provides yet more fuel for the Administration's fire (the "deficit" came in above consensus expectations), I would argue that it was actually a very bullish report and totally supports Washington's ambitions going forward.

Quotes of the Day: Can't Have It Both Ways!

From the get go, we've expressed our concerns with regard to the risk of the Administration making good on what many thought was mere protectionist rhetoric; while all along acknowledging that its other ambitions, like tax reform and deregulation, had absolutely moved the business sentiment needle in a positive direction. And the latter is no small deal when it comes to the economy. I.e., when producers and consumers feel good about their lots, they become very stimulative economic agents.

Like I Said, Still in the Woods!

Like I suggested this morning, we're still very much stuck in the short-term woods. Here's the latest out of Washington:

This Week's Message: Rally Makes Sense, Not Out of the Short-Term Woods, and Long-Term Continues to Look Good...

In Saturday's blog post we said that the backdrop for equities is such that if the U.S. protectionist push 

"doesn't get drawn out long enough to crack the general setup we'll see a sharp rally in stocks, likely to new highs." 

Headlines of the Day: Mnuchin Looking To Calm Markets Come Monday

While the market's understandable tanking last Thursday and Friday -- along with the accelerated selling right at the close for the week -- bodes bearish for tomorrow morning, here are a couple of news items that could offer stocks a respite:

Quick Thought On Near-Term Prospects For The Market

Here's a snippet from this morning's entry to our internal log. In essence, it's what I'm thinking about the immediate market impact of recent events, as well as the near-term prospects for equities: 

Durable Goods Orders are Encouraging, Big Time! -- AND -- From whom would you take counsel on trade?

Durable goods orders for February were exceptionally strong! The bright spot to us being core capital goods; i.e., businesses in the U.S. are expanding, which should help you understand why our country's business leaders, virtually across the board, are literally pleading with Washington to rethink its position on trade:

Still a Sissy of a Correction!

Days like this (Dow down 724) virtually require, say, 4 blog posts (by 3 pm). 

You may recall, or perhaps not (given recent action), that 2018 started out like gang busters. In fact it was the 7th best start to a year (as of Jan 23rd) in stock market history. 

Video Commentary: Current Conditions

We featured a beautiful eagle flowing over a snowy mountain range as our visual in the intro, then I completely forgot to share the analogy. So you'll find it in print below the video player:

The market -- per this morning's futures action -- is bracing for the tariff announcement...

Regular readers by now are well-versed on our position with regard to protectionism. A few minutes ago we posted a quick piece on its impact on the Dow Jones Industrial Average's most influential (from a volatility standpoint) constituent. 

Quote of the Day: A Happy Day for Boeing's European Competition!

The following from Bloomberg Intelligence's aerospace and defense analysts should help you understand why the stock market hates protectionism:

Uh Oh! The Tariffs Have Been Announced! But Wait!

Uh oh, the tariffs have been announced (well, the announcement of the coming announcement of the tariffs has been announced)! But wait, after freezing in place while details were dispensed, the Dow rallied to up 150 (+117 now). So, tariffs good? No, not at all, but at least round one appears to be substantially muted relative to the rhetoric going in.

Headlines Speak a Thousand Words -- And -- Look for 4 Fed Hikes This Year, Regardless of Today's Comments

More often than not, when a headline inspires me to click through to an article (typically they don't), I can glean all I need from the first few lines.

Here's a handful from this morning, and one from yesterday. There's a theme here:

This Week Message: The Fed and the Market -- And -- The President and the Market

I recall early in my career growing frustrated over what I viewed as Alan Greenspan's obsession with the stock market. I remember thinking that it wasn't the Fed's responsibility to hold the market's hand through volatile times; that its members should just focus on their mandate, which makes no mention of the stock market, and let equity prices react accordingly. 

Headline Update -- And -- As For What Matters

Not to belabor one morning's worth of volatility, but since I jumped out early with an always-to-be-questioned-headline (and based on the unusual number of hits it fetched) I figured I'd offer a quick followup since that first headline reason for the selloff has been basically abandoned by the media. 

Now it's:

Dow drops 300 points, S&P slides more than 1% as Facebook drags tech stocks lower

This Morning's Action

This morning's always-to-be-questioned headline says:

Dow falls 200 points on Trump's Twitter meltdown

Headline of the Day: Bitcoin a serious threat, not! -- And -- Blockchain itself, however, is another proposition altogether.

From day-one, when anyone asked me how I felt about bitcoin I'd reply, "I absolutely love the concept, but fuggetaboutit if you think it's going to take over the world. I mean, imagine the threat to the global monetary system. The powers that be will have nothing of it, I promise."

We Still Think the Market's a Bit Behind the Inflation Curve

On balance, last week's economic data releases were decent; better than decent when we look at consumer confidence, jobs-related data and industrial production. We're seeing virtually no signs presently of any heightened risk of a near-term recession; which is of course what we're forever on the watch for as we consider our equity exposures.

Don's Mom

The mother of the best economist I know passed away on this day in 2008. The tribute he penned to her a decade a go is timeless, and most inspiring. 

We Had A Huge Trade Surplus In January!!

Wow! We had a huge trade surplus in January!

Well, not by popular definition, but certainly by your investment consultant's 😇.

Why Media Headlines are Virtually Worthless

Now, it is true that the Dow is down over 100 points as I type. And it is true that retail sales unexpectedly dropped last month (something we'll dig into and apply to our model). However, does the message implied by the following headline paint an accurate picture of this morning's move in the Dow?

Data of the Day: Small Business Owners Continue to Like What They See

Small business is the employer of U.S. citizens, and, thus, the internals of the National Federation of Independent Business monthly survey account for 3 (of the 49) inputs to the economic component of our macro index. 

This Week's Message: Why We Like Financials Right Here -- And March Trends

This week we raised our financial sector target weighting to 18% (from 16%) of equities, making it our single heaviest position (previously tied with materials and industrials [still at 16% each]). Here's why:

Market News of the Day: Protectionism putting the bull market to the test...

For the umpteenth time, we emphasize that, while our analysis of current conditions favors equities going forward, we see a U.S. push toward protectionism as the development that will put the data, and, thus, our thesis, to the test. 

We Remain Constructive on Tech, However........

The following headline crosses my screen after what was a strong start for the market this morning:

The S&P 500 and the Nasdaq turn negative as tech rolls over.

We do remain constructive on tech going forward, however, per the following, not as much as we were this time last year:

Milton Friedman on Steel Tariffs (VIDEO)

If you suffer any ambiguity over the steel and aluminum tariff debate, allow Milton Friedman six minutes to clear it up for you:

Data of the Day: Capex easy to do going forward...

While getting a jump this morning on our internal weekly macro update, one of the inputs to our index -- the "corporate financing gap" -- jumped out at me. By comparing non-residential fixed investment (i.e., business capital investment) to corporate cash flows this indicator gauges corporate America's wherewithal to expand. 

Quote of the Day: More than Goldilocks

In yesterday's blog post we suggested that the stock market (participants in the aggregate) -- based on its strong positive response (Dow +441) to the February jobs report -- is betting that interest rates will remain tepid despite the economy picking up some real steam. 

Our suggestion lies partly in the fact that when January's healthy jobs report featured a surprise pickup in wages (exceeded estimates, while February's missed) -- presumed inflationary -- the market tanked (Dow -667):

Goldilocks Was Nearsighted -- Or -- A Really Good Jobs Number, But......

In this week's message we stated the following on stocks and short-term risk based on this morning's jobs report:

Let's Talk Economics, Not Politics!

Here's the headline:

(Bloomberg) -- China’s exports surged and its trade surplus unexpectedly widened in February, illustrating the lopsided nature of global commerce that Donald Trump is preparing to introduce protectionist measures against. Overall exports rose 44.5 percent in February from a year earlier and those to the U.S. surged 46.1 percent, customs data showed...

Here's one possible spin:

Video Commentary: More On Current Conditions

This morning's video commentary piggy backs onto last night's with a little deeper dive into our ongoing research and assessment of current conditions.

Highly recommended for clients!

A Little Clarity on the Mucky Protectionism Debate

Here's a slice of my end of a friendly dialogue regarding current events. I'm offering this up to inject some clarity into the very mucky protectionism debate:

Video Commentary: Putting Tomorrow's (literally tomorrow's) Volatility Into Perspective, and More on the Current Setup

The President's chief economic adviser -- one the capable advisers (who adamantly opposed the recently unveiled tariff scheme) we referred to in an earlier post -- announced his resignation this evening. As I type, Dow futures are pointing to a 400 point decline at the open. 

Here's some perspective:

This Week's Message: Hey, Chicken and Paper Clips Say There Ain't No Inflation -- And -- This Week's Vision Test

In a recent weekly message we suggested that a strong two-day rally in stocks at the time was based on false pretenses: the notion that the economy isn't in fact exhibiting the kind of strength that would see interest rates notably higher over the foreseeable future, and that that's a good thing for stocks. 

Again, we think the data, and market history, fly directly in the face of such thinking.

Quote of the Day: What Could Bring the Bears Back...

Economist Ed Yardeni echoes our chief concern for the market coming into this year (as expressed in our 2017 year-end letter), and the idiosyncrasy that we've stated will likely mute the specifics of what might otherwise test our bullish thesis going forward:

February Surveys Confirm Our View of Present Conditions

This morning's releases of the services sector surveys by Markit Inc. (PMI Services Index) and the Institute for Supply Management (ISM Non-Manufacturing Index) essentially confirm what our macro analysis tells us about the current state of the U.S. economy.

Pins and Needles Over Protectionism

Much like other head-scratching phenomena (read tweets and other public commentary of an impulsive nature) of the past year+, the latest calls for anything but knee-jerk reaction. It does, however, demand that we assess our various areas of exposure to what in my humble view is the most ill-advised impulse thus far. 

Quote of the day: These things take time...

Bespoke Investment Group's guidance on present circumstances mirrors ours:

One More on Tariffs

Okay, we'll do just one more very quick post on the potential economic/market/political effects of tariffs. 

Going forward we'll wait for the details and monitor the immediate impact on market technicals and begin assessing the potential longer-term fundamental implications for both our U.S. and non-US exposures, if any:

So much for this being about U.S. Jobs:

The Simple Sad Truth About Tariffs (Q&A)

In this morning's video commentary I suggested that I'd offer up more on protectionism and markets over the weekend. Thinking about it, the brief mention in this morning's written post pretty much sums up the why of the market's negative reaction:

Video Commentary: The Correction and Our Assessment of Present Conditions

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Present volatility -- per all of our commentary -- makes sense, however....

We've been strongly suggesting that the correction has yet to run its course, which means days like the last three (we'll see about today) were in the offing with or without the ill-timed (always ill-timed!!) announcement that the U.S. is about to do a number on its own consumers, its exporters, its manufacturers who import all manner of components, and of course its key international relationships.

Oops! Scratch the Earlier "Market-Centric Trump!" Post

Forgive all of the intrusions this morning, this should be the last time I bug you today! But I want you to understand that recent volatility has at this point nothing to do with the fundamental market setup.

Headline from a minute ago:

Quote of the Day: The Fed and the Financial Sector

Bloomberg sees financials as the sector to benefit the most under the new Fed regime. As evidenced by it being our current top sector weighting, we happen to agree (although a financials-friendly Fed is not the only thing that has us bullish on the space):

Market-Centric Trump!

Per this morning's blog post, I'm thinking the pending tariff announcement could (depending on severity) be a negative event for the stock market. I suggested that the President is very market focused and would ultimately look to escape any measure that clearly hits stocks in a bad way.

Another Potential Catalyst for Volatility -- And the Market's Definitely In the Mood For (or in need of) Volatility!

We've been pounding aplenty herein on the normalness and, frankly, the necessity (this bull market is overdue for a pause/shakeout) of present volatility! So the bottom line is that stocks remain ripe for some pain, regardless of the catalyst. I.e., the market has to be in the mood to correct for, say, a more hawkish Fed stance -- and/or something else -- to set things in motion.