Tuesday, April 24, 2018

Weaning Ain't Fun!

Well, dang! 

Thanks – more than anything else -- to threats of a global trade war, stocks essentially missed out on (unless of course we see a big advance as we close out April) what was a really nice setup going into the seasonally-special March/April period. I.e., having just suffered through the first 10+% correction since early 2016, the market was ripe for a rally as it entered the historically two best months of the year. 


But, alas, the chief risk (protectionism) we harped on ad nauseam last year and this rose its ugly head.

As for the present state of affairs, while the trade rhetoric of late has improved – but no bullish conclusion (which would be no new tariffs on China and NAFTA stays intact) as of yet – and corporate earnings announcements have been stellar, the fact that we’re now approaching the traditionally weakest seasonal stretch (that traders are all too aware of) amid notably rising interest rates makes a sustainable near-term rally in stocks, while certainly possible, a tough thing to pull off.

Now, for the good news: The latest market action makes perfect sense, and is absolutely nothing to lose sleep over. In essence, it’s what the patient, discerning investor should expect, given what looks to be an interest rate regime change amid an ongoing bull market

In a nutshell, the economy is heating up, and inflation is – and, thus, interest rates are -- finally on the rise; which virtually has to pose a shock -- bull market or not -- to an equity market that has been nursed through a long, slow recovery on historically low interest rates. I.e., the weaning is bound to provoke a period of crankiness, temper tantrums even, as the market is now forced to diet on the more solid fare of corporate earnings as it begins its journey through the inflationary phase of what is currently the second longest expansion on record.

Of course a positive resolution on trade with China (as well as NAFTA) could be quite soothing during what will otherwise be a temperamental stretch for the market. Then ehem there’ll be the mid-term elections to contend with.

We’ll keep you posted…

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