InnOvation Capital & Management, LLC
IntelDigest
LAW – POLICY – FINANCE – MARKETS
INFORMATION FOR THE ENTERPRISE AND INVESTOR
AUGUST 30 , 2017
Contact Richard Power with comments or questions. IntelDigest is intended for the use of our clients and colleagues. Material may not be reproduced, forwarded or shared without express permission.
We will continue, over the next several weeks, to discuss prospects for The Economy and Investing for the remainder of this year. September has historically been a difficult month for investors, and the length of the current Bull Market causes nervousness among analysts. So, we will follow these matters closely and devote each weekly issue of IntelDigest to investment matters through the end of September.
It would surprise no one if stocks were to experience a 10% correction sometime in the next two months. However, that is NOT what we anticipate for the markets. We have written that:
“…. expect the stock market to stay strong through the end of this year, attributable in part to a ‘melt-up in earnings.’ We have experienced the second-longest Bull Market in history, but this Bull is still pretty healthy. Plus, interest rates remain at historically low levels.”
We believe that the single most important factor in the current market climate is Interest Rates. While ultra-low rates have done immense damage to fixed-income investors over the last several years, investors in equities have done very well. There have simply been no easy options for investors, so they have invested heavily in stocks and stock funds, driving Price-to-Earnings Ratios to unusually high levels.
There is no chance of large or frequent increases in interest rates at any time in the near future. So, we expect that stocks will continue to be the “only game in town” for the remainder of this year.
We will stay invested, but keep an eye on our Stop Losses. If the market continues to “melt up,” we will ride the last few months of the Bull Market. If we encounter a correction, we will follow our Stop Losses and take profits.
Consumer Sentiment
Another positive note for the Economy is a renewed confidence among Consumers, which can be attributed to higher job creation and a lowering in the “official” unemployment rate, trends which have been improving steadily over the last few years.
According to The Conference Board, consumer confidence has attained the highest level since July, 2001. It had bottomed in February, 2009, at the depths of the Great Recession. Economists pay attention to these numbers because consumer spending accounts for 70% of U.S. economic activity.
News from Jackson Hole
The annual meeting of central bankers at Jackson Hole, Wyoming is a closely-watched event every Summer. Leading officials from the Federal Reserve and foreign central banks get together at the foot of the Grand Tetons to discuss interest rates, the world economy, and financial regulation.
A notable participant at the conference this month was Mario Draghi, President of the European Central Bank (ECB), who clearly signaled that the ECB would continue its program of monetary accommodation. This would keep bond yields in Europe extremely low.
This is yet another motivator for higher stock prices.
Bullish Catalysts for Stocks
Among the other bullish catalysts for stocks to run higher: low inflation, a lower US Dollar, lower energy prices, and the prospect of lower taxes by next Tax Season.
We have also discussed, in the August 9 issue of IntelDigest, the fact that the stock market is shrinking:
“The number of publicly-traded companies … represented by individual stocks … has contracted significantly in the last two decades. In 1997, there were nearly 7,500 publicly-traded stocks; today, there are fewer than 3,600. In addition, many companies have bought back millions of shares of stock since the market downturn in 2008.
One explanation for the market run-up of the last eight years: a diminished supply of stocks available for purchase, and investor demand for equities because ultra-low interest rates ravaged the fixed-income markets.”
Some analysts call this the “washing machine” market. There is more money sloshing around (Demand) and chasing fewer and fewer companies (Supply). The stock market is buoyed by this sea of Demand.
More next week …..