Posted | by David Moenning |
The New Market Narrative: Dilly Dilly! image

Bearish reversal? What bearish reversal? It turns out that Wednesday's market narrative made a mockery of Tuesday's hand wringing relating to a potential government shut down and the end of QE as we know it. So, cue the reversal of the reversal, or the dip buying, or whatever you'd like to call it. The bottom line is that one day after a 380 point reversal off the top, the blue-chip indices bulled their way to fresh all-time highs. Dilly Dilly!

If you find yourself shaking your head at this week's action or wondering how stocks, bond yields, and the VIX can all go up at the same time one day after what was purported to be an "important reversal," you are not alone.

P.S. Anyone who claims to have "called" today's move should be avoided like the plague. But I digress.

The key to my oftentimes meandering morning market missive is to identify the driving forces behind the market's movement. To be clear, we are NOT trying to pass judgement on the action, rather to try and understand why Ms. Market is doing what she is doing.

So, from my seat, Wednesday's joyride to the upside was triggered by a resumption of the "growth narrative" and was sponsored by our good friends at Apple (NASDAQ: AAPL).

To clarify, the current market narrative is a two-parter. First, it is becoming apparent that the trend in Corporate America is to use the tax benefits created by the new tax bill to spend money. On bonuses. On plants. On hiring.

And the second part is that the stock market has yet to "price in" the full effect of what is happening out there.

Exhibit A in this argument was Apple's announcement yesterday that it was bringing home a boatload of cash, paying a big bunch of taxes, and will be accelerating their investments in plants and job creation here in the good 'ol USofA.

More specifically, Apple announced that it will be repatriating what sounds like about $245 billion in overseas cash, which will put an estimated $38 billion in the U.S. Treasury. According to reports, I believe this will be the biggest tax bill in history. So, as Americans, please join me in saying a big "Thank You!" to Mr. Cook and Co.

In addition, Apple will be investing $350 billion in the U.S. over the next five years. $30 billion of which will go toward building a new campus somewhere in the U.S. (let the bidding begin!).

Next, the maker of the iPhone says they will create 20,000 new jobs in the U.S. And it didn't take long for the White House to take a bow and to Twitter to crow about the success.

And finally, the company announced that it will award bonuses of $2,500 in restricted stock units to the majority of its 80,000 employees.

While the critics/skeptics argue that Apple created 4,000 new jobs last year, the key to market participants is the overall narrative here. The narrative that the tax bill is spurring new growth and new investment. And that this growth has yet to be "baked in" to stock prices. Everybody now, "Dilly Dilly!"

So, the game of discounting the anticipated greener pastures appears to be ongoing. And the bulls tell us to expect more Apple-like news relating to new growth throughout earnings season. As such, I, for one, will be keeping my eyes and ears open and paying special attention to the upcoming parade of corporate reports. In short, this ought to be interesting!

Thought For The Day:

Talk to people about themselves and they will listen for hours. -Benjamin Disraeli

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

David D. Moenning
Chief Investment Officer
Heritage Capital Research
Serving Financial Advisors since 1989
Serving individual investors since 1980
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Disclosure: At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none.

Note that positions may change at any time.

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of the Economy
      2. The State of Interest Rates
      3. The State of Earnings Growth
      4. The State of Fed Policy


Disclosures

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.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

Mr. Moenning may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.