Thursday, May 3, 2018

What It Is

I keep hearing that the reason the market isn’t rallying hard during this amazing earnings season is that “it was all priced in”. Nothing new here. Everybody knew earnings were going to be great, so now what?” Nah… I don’t buy it… If it were all priced in so many companies’ stocks wouldn’t be screaming higher as earnings are announced, only to give it all back the next day…

It’s like “Damn, those numbers are better than we thought, and the outlook’s strong! Buy it!” “But wait, I just read where China says sure, come talk, but we’re not sacrificing our manufacturing sector or targeting some reduction in the trade deficit’, and the U.S. said ‘we have low expectations about this week’s meeting, good chance we’ll be leaving early with nothing in hand.’ I’m taking that quick profit and waiting to see how this trade thing shakes out. I mean, did you read those comments from the manufacturing ISM? Everybody’s feeling those steel and aluminum tariffs and they’re worried sick over more to come! So much for protectionism being good for U.S. manufacturing.”

Sure, there are also higher interest rates, which could be is a factor as well. But if they’re rising because the economy’s rising, that’s not such a bad thing, it keeps the market (players in the aggregate) honest and forces it to focus on what matters; earnings. And earnings happen because people buy stuff, and people buy more stuff when the economy’s good.

Bottom line folks, trade’s the bummer right now. As for the near-term, a positive outcome (i.e., nothing happens, and everyone commits to nothing happening going forward, despite one, or both, side(s) declaring “WE WON!”) could mean a very nice rally at a time of year when very nice rallies are rare. In terms of a negative outcome, there are two flavors to consider: One would be no truce, but no war (yet), just more delays to allow more time for “negotiation”: That essentially means no very nice rally at a time of year they seldom happen anyway. The other would be a trade war, which, let’s just say would be really ugly on virtually all fronts.

Please tell me this next statement doesn’t surprise you:

In the end, in the beginning, and in the middle it’s all politics. And a trade war will be as much a political mess for its perpetrators as it will be for the markets and the economy. Which is why odds favor peace. But I have to tell you, while it has to be simply posturing; I sure don’t like yesterday’s rhetoric. Nor does the market; Dow down 174 yesterday, down 200 as I type this morning…

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