MARKET ALERT – Wall Street Rumblings – Issue #439, July 16, 2017 by Ray Dirks

MARKET-ALERT – Rumblings Up, Down, and Around Wall Street – Issue #439 dated July 16, 2017 – with Ray Dirks of Ray Dirks research and his team of securities analysts and money managers.

Well, well. well…after we’ve been recommending U.S. common stocks consistently virtually every week as by far the best place to invest people’s money, the Dow Jones and Standard & Poor’s stock market averages spurted upward last week to all-time highs again – despite concerns in the media and the press both here and abroad about lack of political leadership in the United States and lack of economic and corporate progress both here and in many other countries around the world. The Nasdaq – representing the over-the-counter market for common stocks in the United States, primarily, jumped even faster and further last week to close on Friday, July 14 at very near its all-time highs.

To further explain the outlook, let’s quote from “The Trader” column in tomorrow’s Barron’s. The Dow Jones Business and Financial Weekly, where the headline reads: “ Dovish Yellen Spurs Soaring Stock Market”.  The article begins : “U.S. stocks climbed to another record close on Friday, driven by continued prospects of low interest rates  and by strong second-quarter corporate earnings reports, particularly from the banks.

The main force behind the rally was the dovish performance by Federal Reserve Chair Janet Yellen in Congress on Wednesday and Thursday, when she reiterated that rate hikes would most likely be gradual. On balance, her remarks were interpreted as evidence of continued accommodative monetary policy, and from there, stocks were off to the races. The ignition of the rally can almost be time-stamped to her appearance. Before the speech, the market was down for the week.

Investors were also heartened by a strong kickoff in the second-quarter earnings parade, as large banks such as JPMorgan Chase {JPM), Citibank (C), and Wells Fargo (WFC) all beat analyst earnings expectations. Nevertheless, their stocks and those of the financial sector fell on Friday, down 0.5%, both on weaker-than-anticipated mortgage business and trading outlooks and on profit-taking. Since the end of June 2016, the financial sector is the second-best performer, up 43% to tech’s 44% rise.

Last week, the Dow Jones Industrial Average rose 1%, or 223 points, to 21,638, and the Standard & Poor’s 500 index was up 1.4%, or 34 points, to 2,459. Both were all-time highs. The Nasdaq soared 2.6%, to 6,312, its second highest finish ever.

A lot of action in the back half of the week can be attributed to the market’s view that the probability of interest-rate hikes has lessened , says Thomas Lee , head of research at Fundstrat Global Advisors. That sentiment was bolstered not just by Yellen’s stance in Congress, but also by economic data out last week. On Friday, both June’s retail sales and the consumer price index were released, and economic weakness – which supports lower rates – was evident, he says.

Any lingering view that the Fed might raise rates in September is nearly gone, and December is now the earliest point at which markets look for another hike. Rates that will be lower for longer also played a part in the drop in financial stocks last week, points out Steven Massocca, a managing director at Wedbush Equity Management. “It was a handy excuse to take profits,” he says.

While bank stocks didn’t react well to quarterly reports, says J.J. Kinahan, chief strategist at TD Ameritrade, “on balance, last week’s results were a good start to the earnings season.” Second-quarter earnings-per-share growth for the S&P 500 is expected to be about 6% to 8%, depending on which data source is cited. That isn’t as good as the first quarter’s 15%, but much better than the year-ago second quarter EPS drop. “For the next few weeks, if the EPS growth materializes as investors expect, we will see higher highs,” says Kent Engells, managing director at Capital Securities Management.

Fundstrat’s Lee, who’s more cautious than bullish, says that in the absence of a negative catalyst, fund flows are likely to go to equities. The market seems impervious to the negatives that bears throw at it.”

What’s clear to Rumblings from the discussion above is that interest rates are likely to stay around the current low levels for quite a while – after which they will probably move up gradually, meaning that bonds – both corporate and government bonds, both Federal and municipal, will continue to provide unattractive yields to investors, and the market prices at which these bonds will trade will decline considerably.

Accordingly, Rumblings suggests that readers/investors consult with their investment advisers about the possibility of selling most of their bond holdings, and re-invest the proceeds in common stocks of companies based in the United States such as those securities on Rumblings’ list of Favorite Stocks for 2017, which includes common stocks like Apple, Inc. (APPL), Aflac (AFL), and Avis, Budget Rent-a -Car , which have the potential of better-than average capital appreciation, plus dividends, for their shareholders.

Rumblings also suggests that readers/investors place no more than 1% of their funds in any one security. It’s best to diversify…! 

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