MARKET-ALERT –Rumblings Up, Down, and Around Wall Street – Issue #461 dated January 7, 2018, with Ray Dirks of RAYSEARCH plus his team of securities analysts and money managers.
‘Twas an especially exciting week on Wall Street in the United States – the first week in the year 2018 – as the stock market rose sharply, as Rumblings has been predicting it would, and Rumblings’ Top Ten Stocks for 2018 performed very well, led by Amazon.com and International Paper.
For some perspective on the outlook for this new year, 2018, let’s look at “The Trader” column in Barron’s, The Dow Jones Business and Financial Weekly, which also publishes The Wall Street Journal. The headline reads: “A Goldilocks Market Barrels into the New Year”.
The column starts off: “Talk about a Happy New Year. The Dow Jones Industrial Average rose 577 points, or 2.3%, to 25,296 last week, a new all-time high, and its first time above 25,000. The Nasdaq Composite climbed 3.4%, to 7,137, to a new record high, and its first time above 7,000. The Standard & Poor’s 500 index also hit an all-time high, gaining 2.6%, to 2,743.
It all makes for an amazing beginning to the year. “I get the sense that people are starting to worry they’re missing out on something,” Greg Woodard, portfolio strategist at Manning & Napier.
Even a tepid job report this past Friday couldn’t stop the market’s rally. In fact, it fueled it. Never mind that the U.S. economy added just 138,000 jobs in December, fewer than the 190,000that had been predicted by economists, or that wage growth remained muted. It was another Goldilocks report- strong enough to suggest that the economy continues to grow, weak enough not to have to worry about the Federal Reserve quickening the pace of rate hikes – and the S&P 500 jumped 0.7%. “It was a bit of a reprieve and another reason for traders to buy stocks,” says Jason Ware, chief investment officer at Albion Financial Group.
With the Dow topping 25,000 this week and the Nasdaq Composite breaking 7,000, the next obvious place to look for a nice, big round number would be the S&P 500, which needs fewer than 200 points to crack 3,000 – which just so happens to be the target for many Wall Street strategists. That could be difficult if inflation accelerates, says Wilmington Trust Chief Investment Officer Tony Roth, so more records like Friday’s could be a necessary ingredient for another big rally. “As inflation takes hold, it puts a cap on the stock market,”, says Roth, who expects it to accelerate this year. But if we don’t get inflation? “We could get the S&P 500 to 3.100,” he says.
Still. It’s hard not to wonder if sentiment is getting a bit frothy. Leuthold Group Chief Investment Officer Doug Ramsey notes that bulls dominated the Investors Intelligence Sentiment Survey in 2017, averaging 77% over the course of the year. That’s the second highest 12-month average on record, and only the 10th above 70%. But readings that high haven’t been great for future returns, with the S&P 500 averaging a decline of 0.2% in the following year. “A sentiment indicator with one of the longest histories already suggests investors could be disappointed in 2018,” Ramsey says.
And with all the recent upside, it’s easy to forget just what a selloff can look like. The S&P 500 has now gone 385 trading days without falling 5% or more from its 52-week high, says Jason Goepfert, president of Sundial Capital Research – the longest such streak on record. In fact, on only three occasions – in 1965, 1994, and 1996 – has the S&P 500 gone 370 days without such a drop. When those streaks ended, the market dropped an average of 8.7% over the next 30 to 40 days. “We are certainly wildly overbalanced. And investors have forgotten that markets go both ways,” Goepfert says.
Except when they don’t.”
Rumblings continues to be optimistic and suggests that Readers/Investors check with their investment advisers, and then sell most, if not all, of their fixed-income investments, and re-invest the proceeds, together with cash that may be available, in well-managed publicly-traded common stocks such as those common stocks on Rumblings’ 2018 Ten Favorite Stocks list.
Rumblings also suggests that Readers/Investors place no more than 1% of their funds in the securities of any one company. …. It pays to diversify !