“The trick in investing is to just sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are saying ‘swing you bum,’ ignore them.”
This quote seems appropriate now because (a) major league baseball spring training has started, (b) that’s what it feels like in the financial markets at the moment, and (c) Warren is pretty smart.
This year is an unfolding tug of war between the tail wind of hoped-for fiscal stimulus of tax reform and regulatory relief against the headwind of monetary tightening by the Fed and European Central Bank and Bank of Japan.
Even very smart investment professionals are divided on where the markets stand. See below (courtesy of Raymond James & Assoc.)
- On the bearish (negative) side:
As the always insightful Jason Goepfert (SentimenTrader) writes on the bearish side: The Dow climbed to its 12th straight record. Going back to 1897, the index has accomplished such a feat only 5 other times. The momentum persisted in the months ahead every time, with impressive returns. But when it ended, it led to 2 crashes, 1 bear market and 1 stretch of choppiness. The five instances were 1927; 1929; 1955; 1964 and 1987. … Like many instances of massive momentum, however, when it stopped, it stopped hard.
- On the bullish (positive) side:
On the bullish side, smart folks at the Bespoke organization scribe: There have been 27 years since 1945 where January was a positive month and February was a positive month. In those 27 years, the S&P 500 gained an average of 19.9%. Technically, it wasn’t up every year because in 2011 it dropped 0.0032%. I know, splitting hairs. However, for the March through year end period the S&P 500 averaged a gain of 12.4% with positive returns 25 out of 27 times.
The chart below shows all of the declines from a previous high in the S&P 500 since the financial crisis bottom in March 2009. Declines of at least 5% (red dots) are not uncommon and have occurred every year. However, we have not had a 5% decline since June 2016, which makes me concerned that we are overdue for one, and the higher it climbs the farther it may fall.
(courtesy of Raymond James & Assoc.)
As such, I am being very selective in how and where I deploy your money within your portfolio.
On the economic front, the US economy continues to show signs of consistent, albeit tepid, growth. The final reading on 4th quarter GDP (gross domestic product) came in at 1.9%. However, looking inside this figure I find that consumer spending grew 3%, which is a positive given that consumer spending accounts for roughly 2/3 of the economy. On the downside, government spending and business investment were down and a drag on overall growth. Also, the PCE indicator (Personal Consumption Expenditures) at 1.2%, remained well below the Federal Reserve’s target of 2% inflation. Lastly, consumer confidence increased to 114.8, a level not seen since July 2001. All of this increases the likelihood that the Federal Reserve raises interest rates in March.
Turning to the impact politics is having on the financial markets, I feel the markets are reacting to positive expectations surrounding a more pro-business administration and Congress. Last night’s address to Congress had a more unifying tone than previous speeches President Trump has given. While he reiterated the various economic programs he wants to implement, specific details and timeframes were missing. The early indications from the financial markets are the speech was received favorably and they are willing to wait on the details of his economic agenda. Given the rather aggressive agenda he has laid out, it is highly likely that something is going to get delayed and/or watered down in order to get through Congress. How long the market will be patient is yet to be determined.
March Calendar of Events (comments and additions for future months are always welcome)
March is Women’s History Month. Please says thanks to all the important women in your life.
March 1st Today is both Ash Wednesday, the start of Lent in the Christian religion and Zero Discrimination Day, which aims to celebrate individuality, inclusion, and human rights while promoting tolerance, compassion, and peace.
March 8th International Women’s Day
March 11th Purim festival begins
March 12th Daylight Savings begins – Spring forward
March 17th St Patrick’s Day
March 20th Spring begins in US – It’s 70+ degrees on March 1st in New Jersey – go figure
I hope you find this information helpful. Please share it with anyone you feel could benefit from it.
Sources: Raymond James & Assoc., CNBC.com, SentimenTrader, Bespoke Investment Group