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Falling Dollar? Trade War? No Worries! image

Under the category of Fun Facts to Know and Tell, it interesting to note that the S&P 500 has enjoyed a record number of record closes so far in 2018. Yep, that's right; there has never been as many fresh all-time highs as we've seen in the first 15 trading days of the new calendar year.

You can also add in the fact that S&P hasn't suffered a daily decline of more than 0.6% in 96 days, which is the longest such streak since at least 1945. And that the venerable blue chip index starts today's session up 6.1% on the year and has enjoyed a gain of 17% since August 18 - the last time stocks showed any sign of corrective activity. Oh, and for those keeping score at home, the S&P now sports a return of 55.1% for the current cyclical bull market, which began on February 11, 2016 and a whopping gain of approximately 325% for the secular bull that commenced on March 9, 2009.

All of the above can be used to argue that stocks are currently overbought. And with investor sentiment hitting record highs on some measures, technicians suggest that the table is now "set" nicely for the bears to come out of hibernation at some point. But, so far at least, our heroes in horns have refused to yield for even a day or two.

Yesterday, it appeared that our furry friends in the bear camp might have an opportunity. After moving to fresh all-time highs in the morning, stocks turned mid-morning and began to sink in earnest. And before you could get to lunch, the Dow was nearly 300 points off its high and down 104 on the day.

At issue were comments from U.S. officials on the state of both U.S. trade and the greenback.

First up there was Treasury Secretary Mnunchin, who appeared to be "talking down" the dollar in Davos. Former Dallas Fed Governor, Richard Fisher, wondered aloud on CNBC if we weren't seeing another "Jim Baker Moment," referring to the then Treasury Secretary's words in August 1987, which wound up sparking the great crash.

Fisher went on to say that it was a mistake to try and talk the greenback lower, despite the fact that a lower dollar was good for exports and the trade deficit. The bottom line here was that Mnunchin appeared to be contradicting the U.S. Government's long-standing policy of a strong (or at the very least, a stable) dollar.

Then there were the comments from Commerce Secretary, Wilbur Ross. Apparently, Ross said in Davos that China's technology strategy represents a "direct threat" to the U.S. and suggested that U.S. trade authorities were investigating whether there is a case for taking action against China for infringements of intellectual property.

Before you could blink, the "dixy" was at new lows and stocks were falling.

But, as you might suspect in this environment, the dip buyers proceeded to do their thing at around 1:15 pm eastern (remember, Cramer told us that we have to "pounce" on any/all declines in this market!) and while the S&P finished fractionally lower, the Dow closed with a gain of 41 points and yet another all-time high.

Why the rebound, you ask? Aside from the obvious answer of "animal spirits" and an abundance of dip-buyers out there, Speaker of the House, Paul Ryan's words regarding the benefits of tax reform may have helped remind everyone of current theme - I.E. that things are going to be better than the market currently is priced for.

Ryan said the actions of four U.S. companies on this day represented confirmation of the positive impact tax reform is producing. As Exhibit A, the Speaker detailed the following actions being taken by companies in response to the tax bill:

Starbucks (NASDAQ: SBUX) announced $250 million in worker benefits, including raises for 150,000 workers.

Disney (NYSE: DIS) said the company was issuing $1,000 bonuses to 125,000 employees and will invest $50 million in worker education programs.

Verizon (NYSE: VZ) announced stock bonuses to non-executive employees worth $390 million.

JPMorgan Chase (NYSE: JPM) said it will increase wages for 22,000 workers, give $750 bonuses, and open 400 new branches over the next 5 years.

So there you have it; despite some worrisome comments from folks in high-up places, the game of discounting better days ahead continues unabated. Party on, Wayne!

Thought For The Day:

The most important thing in communication is hearing what isn't being said. -Unknown

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research
Serving Financial Advisors since 1989
Serving individual investors since 1980
Questions, comments, or ideas? Contact Us

Disclosure: At the time of publication, Mr. Moenning held long positions in the following securities mentioned: JPM

Note that positions may change at any time.


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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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