Week In Brief: August 17th

August 23, 2018

Domestic markets finished mostly higher last week. While foreign stocks drifted lower. And the Nasdaq posted a slight decline.
Pushing aside trade-war reports, Q2 earnings were the story. With 91 percent of S&P 500 companies having reported, 79 percent have beaten earnings estimates. While 72 percent posted positive sales surprises. Bringing the earnings-growth rate for the index to 24.6 percent. Which -- should it stand -- will mark the second highest earnings growth rate since Q3 2010, which hit 34.1 percent.
Remember, late summer often ushers in the doldrums for equity markets. With the third week of July often marking a seasonal high. As trading volume declines while Wall Street's denizens pass time in the Hamptons. Or St. Bart's. Or wherever they go. With that pattern repeating throughout global financial centers. From London to Tokyo. The only differences being the vacation destinations and size of the bathing suits.
I spent the previous week visiting clients in Western Colorado. And was lucky enough to fly fish on the Colorado River in Glenwood Canyon with my friend Pat. Who has fished much of the continent. Providing little solace for the fish attempting to elude his well-honed technique. Later in the week, I ventured east. Meeting friends at the PGA Championship in St. Louis to watch Tiger Woods resurrect his career at Bellerive.
The only son of an obsessive military man who doted on his son while ignoring his wife, Tiger went from eight to 28 overnight. With the old man and Nike calling his every shot. On and off the course. By the time he turned thirty? He'd never been 21. So, when his father passed, he ran from the barn like a captive bull. Sowing his oats. And losing his way. All of which led to injuries. Of the physical, spiritual, psychological variety. It cost him his marriage. And for a while, his career. As he went from the cover of Sports Illustrated to the cover of Vanity Fair. With each of his failings covered like the weather.
Until now.
As the tournament leaders walked the course two weekends ago, crowds followed. But when Tiger approached, they swelled to four times the size. As he remains the one person in golf that can still move the needle. Dialing up the excitement. The audience. The coverage. And the moxie. By Sunday evening, Tiger would have to settle for second. But his final fist-pump on 18 told the story: after years in the wilderness, golf's fallen icon is back.
The only thing Americans enjoy more than a fall from grace is a comeback story. And Tiger's qualifies as both. Sports fans around the country, as well as anyone who appreciate a second act, will be pulling for him.
The joust and parry of trade war discussion continue. Although last Friday may have brought the first signs of movement (we won't say capitulation) from Beijing.
A low-level delegation of Chinese representatives arrived in Washington DC. The delegation was led by Vice Minister of Commerce, Wang Shouwen. Perhaps to get thing started on the right foot, Beijing appeared to signal that, if a deal can be reached, Beijing's devaluation of the currency might end. This would do wonders for emerging markets, and their stocks. Which have become very undervalued compared to developed-market equities. But have yet to show any signs of bottoming.
International markets continue to underperform those in the U.S. A by-product of two interrelated concepts:
1) Trade-war fears and the current meltdown in the Turkish currency, economy and stock market. Which have had a disproportionate effect on European and Asian stocks.
2) Uncertainty over the above further strengthened the dollar, lowering foreign returns for U.S. investors.
One hears a lot of pablum about the duration of this bull market. In fact, many are reporting that the bull market will achieve a record lifespan this week. Which is incorrect. This bull remains some distance from achieving real historical significance. As bull markets don't begin at the bottom. But when they surpass the previous highs attained before the last correction. In fact, Bespoke Investment Group recently published some interesting observations on that matter.
As of last Friday, the bull cycle has lasted 3,245 days. And ranks as the second longest on record behind the 4,494-day bull market that ran from late 1987 through early 2000.
Consider that... The S&P 500 went from late 1987 to 2000 without experiencing a single decline of 20 percent.
Let's put that in perspective. If the S&P 500 had set a new closing high last Friday, the current bull market would be 3,447 days old. Which would still fall more than 1,000 days shy of the longest bull market on record.
For the current bull to become the longest ever, the S&P 500 needs to move above its January 26 closing high and then not experience a 20-percent decline from an all-time high through June 29, 2021.
Two takeaways from the above chart. First, bull markets last a lot longer than bear markets. Since 1927, the average bull has lasted 981 calendar days. The average bear? 296 days.
Also of interest, the U.S. bull/bear market cycles became much longer after WWII. With the average post-WWII bull market lasting 1,651 days (4.5 years) and gaining 152.4 percent. While the average bear market has lasted 362 days, with a decline of 31.8 percent.
So, the current bull market's gain of 324.6 percent over 3,245 days is more than double the length and gain of the average bull market. Yet, it remains three years behind the longest bull on record. Could this bull eventually set the new record? We doubt it. Though anything is possible.
In Latin America, widespread suffering continues in Venezuela. According to a study published earlier this year, more than 90 percent of the country lives in poverty. Hunger is so widespread, the average Venezuelan reported losing 24 pounds last year. In sheer desperation, some have reported even turning to "hunting" dogs, cats, and pigeons to survive.
Yet, as in other socialist-created nightmares, President Nicolas Maduro's government has continued to "double down" on the same failed policies that created the crisis in the first place. Over the weekend, he made his most extreme move yet.
Bloomberg reports that Maduro carried out one of the greatest currency devaluations in history. A 95-percent plunge that will test the capacity of an already beleaguered populace to stomach even more pain.
One likely outcome is that inflation, which already was forecast to reach one-million percent this year, will only worsen. The official rate for the currency will go from about 285,000 per dollar to 6 million. A shock that officials tried to partly offset by raising the minimum wage 3,500 percent to the equivalent of just $30 a month.
Maduro's new economic strategy ranks as another desperate response following years of disastrous policies that have decimated growth, sent prices soaring and turned what had once been one of Latin America's wealthiest countries into a dysfunctional nation that's spawned a refugee crisis.
In the history of the civilized world, there has never been an example of an effective economy stewarded within a socialist country. Venezuela stands as only the most recent empirical evidence of that fact.
In more uplifting news, The Eagles' greatest hits album has officially surpassed Michael Jackson's thriller as the all-time top-selling American album. Having sold 38 million LPs and surpassing Jackson's epic piece of production on the all-time list last month.
Always had a soft spot for The Eagles' Hotel California album. Chock full of lyrics on the mysteries, wonders and miseries of life. Much of the album focused on the narcissism and spiritual emptiness of 1970s Southern California. And what better vehicle to project that than a young couple on an aimless, sex-crazed, drug-fueled thrill ride. One that inevitably crashes and burns.
"Listen baby, you can hear the engine ring. We've been
up and down this highway, haven't seen a goddamn thing."
Such are the perils of living "Life in the Fast Lane."
Stay tuned...
Weekly Results
Major indices finished mixed last week. The DJIA gained 1.41%. The S&P 500 rose 0.59%. The Nasdaq fell 0.29%. While small cap stocks gained 0.36%. 10-year Treasury bond yields remained flat at 2.87%. Gold closed at $1,185.05, down $26.65 per ounce, or 2.20%.

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