The “Trump Bump” will soon come to an end, and earnings will once again drive stocks higher or lower. Bulls think 2017 S&P operating earnings could hit $130 per share. Who knows if this happens? Even in times of relative stability, it’s foolish to predict the markets—and probably the only thing everyone can agree on these days is that our current situation is far from stable. There are too many variables, including uncertainties about the policies President-elect Trump will put forward, to have any clue where the market will wind up at year’s end. Will Trump succeed in cutting the corporate tax rate or start a crippling trade war with China? Will he “repeal and replace” the Affordable Care Act or throw the whole healthcare sector into chaos? Your guess is as good as mine, and anybody who claims to know is probably a partisan hack or a salesperson, or both.
One thing we can be sure of is that, as always, a handful of big movers will disproportionately impact the indexes in 2017. Last year Nvidia was that stock. I wish I knew what this year’s breakout name will be, but all I can offer with some certainty is that even if the indexes post another year of low double-digit increases, more stocks will struggle than flourish. Quite a few businesses could vanish altogether. Avoiding these laggards and soon-to-be zeroes is just as important to investing success as scouting for potential five or ten baggers. And one of the best ways to do so is to identify larger secular trends.
Donald Trump’s stunning victory blindsided investors and media pundits alike—not to mention part-time finance bloggers like myself. Last week, I all but guaranteed a Clinton victory, and predicted that it would probably lead to slower earnings growth for health care and energy companies, as well as continued anemic economic growth for the country as a whole.
After one of the longest, weirdest, and most exhausting election seasons in our history, we are only six days away from (finally) choosing a new president. As importantly, 34 Senate seats and all 435 House seats are up for grabs.
Investors are justifiably nervous about the outcome. Yesterday’s selloff was probably a symptom of that unease. Betting markets currently predict Hillary Clinton has a 70-75 percent chance of winning. I suspect her odds are much better. Four years ago Obama’s five million vote victory was fueled by a 56 to 44 percent majority of female voters and an even greater 74 to 26 percent majority of Hispanic voters. I am 99 percent certain Trump will do worse with both groups. Ever since he announced his candidacy Republican leaders (and media talking heads) have known that women and Hispanics would be his Achilles heel and yet, shockingly, he has made no effort to improve his appeal to these voters. Either he is delusional about his chances or simply refuses to learn the daunting math required for a Republican to win the general election.
The Donald’s only hope is the fact middle-of-the-road voters seem to dislike Hillary almost as much as they dislike him.
On Monday night, more than eighty million Americans watched our two candidates for president argue more about missing tax returns, deleted emails, and a former beauty queen than the issue that matters most to our country’s health and prosperity: economic growth.
When our economy grows rapidly, as it did during the Reagan and (Bill) Clinton administrations, good things happen. Home ownership increases, budget deficits shrink (Mr. Clinton produced a surplus his last four years), crime drops, and America’s influence increases worldwide. Unfortunately, our gross domestic product hasn’t grown more than four percent a year since the end of the last century, and I don’t see it topping that critical figure again anytime soon.
A few months ago, I wrote about strong insider buying and how it can be a promising sign for a company’s future stock performance. Last week, JPMorgan Chase’s CEO Jamie Dimon paid $26.6M for 500,000 of the company’s shares at $53/share. That’s about as strong as insider buying gets. The news immediately boosted the bank’s stock. It closed yesterday at $58, though it is still down 12 percent YTD versus a 6 percent decline for the S&P 500 and a 16 percent decline for the S&P 500 banking sector (KBE).
To his credit, Dimon has consistently bought large amounts of his company’s stock over the years, and his investments have always turned out well for him. Many analysts believe his latest purchase could signal a bottom for the financial sector. Does that mean investors should follow Dimon into JPM and other bank stocks?
If you missed Tim Cook’s interview on 60 Minutes on Sunday, watch how fired up the normally serene CEO gets when Charlie Rose asks him about the billions Apple is keeping overseas (email subscribers can find the video here):
I don’t blame Cook for being angry. I’ve been saying similar things for awhile now. Our corporate tax system is “awful for America.” It would be bad enough if we were growing at a decent, or even somewhat decent rate economically. But in this ‘new normal’ era of slow to no growth, it’s inexcusable.
I have to admit, I’m looking forward to the Republican debate on Wednesday. Love him or hate him, Donald Trump’s candor is entertaining. It’s somewhat fun to watch him dismiss his political opponents (including the sitting president) as “losers” and “lightweights,” and his critiques of my industry—which he refers to as “those hedge fund guys”—are mostly spot on. Too many big fund managers really are little more than under-taxed, economically destructive financial engineers. Trump’s strident anti-immigrant rhetoric is far more troubling, but it’s not hard to see why it appeals to voters who feel left behind by globalization and the increasingly polyglot composition of America’s electorate.
Most economic studies show that immigration, legal and illegal, is a net contributor, not a cost, to economic growth. Three decades ago, the legendary University of Chicago economist Milton Friedman noted that the majority of illegal immigrants work, pay income and payroll taxes, but rarely receive government benefits like Social Security and Medicare. Mr. Trump, on the other hand, has frequently been on the receiving end of government largesse. Despite his professed belief in free markets, he is the prototypical crony capitalist. Without all sorts of tax breaks, debt forgiveness, and giveaways, he would be far less rich.
Late last month the Commerce Department revised first quarter economic growth from its initially tepid .2 percent estimate to a putrid negative .7 percent. There was no shortage of excuses for these results. The West Coast port slowdown was cited, as was the usual whipping boy, severe winter weather. In April, CNBC analyzed 30 years of GDP data and showed that first quarter growth persistently underperforms expectations. Whatever the reason, or reasons, the fact remains that –seven years in–we are still mired in the slowest post-recession recovery in US history.
And, to paraphrase Humphrey Bogart, things are never so bad that they can’t get worse.