Trading range was the original expectation after the expected Jan/Feb correction, but it’s interesting how the pivotal domestic and geopolitical news flash points are developing and building the tension that could swing the market either way outside this 2018 range when the stories resolve.
US Nov’ Elections are key and the Trade Wars (NAFTA/Europe/China) along with NKorea & Iran are all huge events that should be mostly resolved in the next couple of months and have potential to shift gears into reverse should Trump allow a Trade War & get no resolution in NKorea thus tanking the Nov’ elections & bringing on impeachment hearings OR should he be successful on those fronts it would be historic & inject a surge of optimism over into the economy & the elections that would begin a new leg higher in stocks over the next year or two.
I tend to favor a positive outcome on the Trade front, but this May/June period should be full of potential resolution on major uncertainties overhanging the market. If there is no clarity by early July on Trade (& secondarily in NKorea/Iran) then the markets will already be lower & may be at decisive new lows into the Dow 20,000 to 22,000 zone during the 4th qtr.’. Even more economic risk has potential to manifest in 2019 should the Dems take control
The positive news resolution of these events however could send the Dow into the 28,000 to 30,000 zone by early 2019.
For now the trading range should remain with several key event deadlines arriving in the 1st half of May that could reach tentative resolutions or be extended. The greater the extensions the greater the risk and heaviness the market may embody, especially with the significant warm-up acts in Mexico & Europe the next 2 weeks. Even a positive Mexican agreement now caving to Trump on NAFTA has high risk of nullification in early July with the likely radical Lefty being elected. If China and Europe are still unresolved at that point, my favoring of the downside targets mentioned becomes a much higher odds outcome.
Incredible earnings by some tech stocks, yet it cannot get the market moving. That seems bearish to me.
Certainly one can empirically argue that it’s a warning sign seeing such good earnings and yet no follow-through on the stock market.
However, I have been saying that we had a parabolic finish to a strong up year in stocks pushing in January and that earnings needed to grow into the price valuations that had zoomed so fast ahead of revenue before the market could continue moving higher.
79% of companies so far are beating their earnings estimates
Also income rose at the fastest Pace in 11 years.
Last November -December I called for a late January Top and first half of the year corrective action and essentially a trading range for 2 or three quarters with much depending upon geopolitical events such as trade Wars and actual Wars
Aside from the time it takes for earnings to catch up to prices we also have a huge weight of uncertainty hanging over the market, suppressing prices from their potential psychologically as well as on the ground business decision making as businesses await the various trade War outcomes with NAFTA with Europe and of course the big one China. All of these could be resolved over the next month or not but if they are successfully negotiated, I do believe it would inject a large dose of adrenaline into the markets taking some averages back to their highs with the only thing holding it back being the November elections, but from higher prices
If the trade War stuff is resolved and a bonus of peace in North Korea and war with Iran transpires, then the market would start changing their minds that the GOP would retain control in November elections, which in that case would send prices to record highs once again.
Of course the caveat emptor is that the trade War just keeps escalating and no resolution in North Korean peace and then of course markets would begin factoring in higher odds of Democrats taking control in which scenario we would turn more medium term negative although not expecting a recession
On another note I will mention that your hedge Eye guy was way off on the first quarter GDP looking for 1.5 or 1.6 percent with the actual number coming in at 2.3 with also good support of numbers in higher disposable income and savings out there. As I have said before there may be a pause for a month or a few months or some trade War and political lull affecting numbers this year but the growth path still appears healthy barring any actual trade War
Brian Sly and Company, Inc.