Until recently, the U.S. stock market had been taking Federal Reserve rate hikes and quantitative tightening (QT) in stride. The investment community had come to believe that corporate tax reform would compensate for the gradual removal of ultra-easy interest rate stimulus. Indeed, up through October, rising interest rates had been hurting bonds far more stocks. Corporate credit assets of all sizes and shapes have logged total return losses year-to-date. The last time this happened? 2008. Lately, however, sellers have been overwhelming…
Apple (AAPL) has been one of my largest individual holdings for the bulk of the post-recession stock bull. I believed in it when it was trading for one-tenth of its current value back in 2009. I even believed in it when it plummeted 40% in the winter of 2012-2013. Back then, though, Apple’s troubles did not adversely affect the broader equity rally. On the contrary. The S&P 500 exhibited all of the signs of a powerful uptrend. More recently, Apple…
The economy, as measured by gross domestic product (GDP), grew at 4.2% in the second quarter. It slowed to 3.5% in the third quarter. Meanwhile, Q4 projections have been coming in closer to 2.9%. An optimistic “take” would be to exclaim that the 2% pace that has been the hallmark of the current expansion is now in the rear-view mirror. For 2018 and beyond, we have kicked it into a higher gear (3%) due to tax cuts and regulation curtailment. A…
Financial stocks should benefit from phenomenal employment trends as well as rising rates. Yet the Financial Select Sector SPDR (XLF) is down roughly 12% from a 2018 high and down nearly 5% year-to-date. Cyclical stocks should excel in a strong economic environment. Nevertheless, the iShares Transportation Average ETF (IYT) is down approximately 11% from its 2018 peak and down 3.5% this year. Facebook, Amazon, Netflix and Google? Market-driving FANG stocks? Tech leadership is off anywhere from 16%-30% from record-breaking tops….
One week ago, FactSet revealed that 250 of the stocks in the S&P 500 had dropped more than 20% from all-time peaks. The index itself, however, had only declined a modest 5% from its record top. Today, there are more indications of market distress. The Russell 2000, a popular small cap barometer, has dropped 13% from its high. The Dow Jones Transportation Average has fallen 13% as well. And the Financial Select Sector SPDR (XLF) is sitting at a 52-week…
In my previous week’s commentary, I explained why higher interest rates will hurt stock assets more than many might think. Naysayers pointed to the fact that rate levels are still quite low on a historical basis. Unfortunately, these folks are neglecting to place their comprehension of borrowing costs in context. Take a look at the last 20 years of U.S. monetary policy via the Federal Funds Rate (FFR). The Federal Reserve’s tightening phase from the 4% level up to the…
Federal Reserve Chair Jerome Powell thinks the economy is awesome. And he has no problem telling us so. What Powell will never discuss, however, is the “way-too-low-for-way-too-long” stimulus that the central bank engaged in to get here. In particular, the Fed has kept the neutral rate of interest far beneath the rate of inflation (CPI) for an entire decade. Consumers, corporations and Uncle Sam predictably borrowed as if there’d never be consequences. What consequences? Asset bubbles. Stocks, bonds, real estate, collectibles,…
Net worth used to be a simple concept. Add up assets. Subtract liabilities. And celebrate (or mourn) the tangible book value of the company. It is not so simple anymore. In a service-oriented economy, the value of a corporation partially depends on several intangibles. How influential is the company’s brand? What about the impact of the personality of one or two key individuals? Nevertheless, the increasing importance of intangibles should not diminish the relevance of tangible net worth. Tangible book…
Things look pretty darn good for the U.S. economy. Unemployment rates are low, inflation-adjusted borrowing costs are practically zero, and corporate profit margins sit at record highs. U.S. consumers have taken notice. The recently released Conference Board reading for consumer confidence reached 133.4. We have not seen a data point like that since the year 2000. Ironically enough, an exceptionally happy consumer is rarely beneficial for the investment markets. Take a look at the forward returns for the S&P 500…
The mainstream financial media love to tell you, “Bull markets don’t die of old age.” True enough. Indeed, the current uptrend remains a shining example of cyclical durability and persistence. For many, then, the fact that the stock bull has set an all-time record in length is cause for celebration. 3,453 days and counting. If you choose to listen, Kool & The Gang will even let you know where the party is at. It is worth noting that the S&P 500 needs to…