Week In Brief: November 10

November 16, 2017

Last week saw stocks cap off their first weekly loss in months. As investors fretted over Congress's ability to push through tax legislation. And were shocked to see longtime market leader General Electric continue its fall from grace.
GE cut its dividend in half for only the second time since the Great Depression. And guided 2018 earnings below consensus estimates. With the new CEO stating that, "The goal is to make GE simpler and easier to operate... Complexity has hurt us."

Don't be surprised should stocks continue to pull back through this week and perhaps the next. U.S. and foreign equities had achieved their most overbought levels since mid-November last year in the week following the election. And anytime stocks become overbought, a consolidation awaits. Typically consisting of a downward-and-sideways trendline. Which, during bull markets, usually present excellent opportunities to enter the market. Especially as we're preparing to enter one of the most opportunistic seasonal investment periods of the year.
Consider the winsome revelation that since 1997, the S&P 500 has ended the year with a Q4 gain in 16 of 20 years. A 75 percent year-end winning rate. With Q4 losses occurring in 2000, 2007, 2008 and 2015. Otherwise, Q4 flourishes have been as reliable as Tom Brady touchdown drives. Rendering a brief pullback prior to the anticipated Santa Claus rally as nothing to be feared. Especially when the market was so overbought.
There is, however, one worrisome piece of evidence as to the age of this bull market. The Dow Jones Transportation Average has begun to lag the S&P 500. This was one of a number of early indicators of trouble back in 1999 and in 2007. As the market senses potential economic trouble ahead, the transport stocks serve as a canary in the coal mine. Often steering lower at the first sign of trouble.
As the following chart reveals, the two indices diverged in early October. Can the transports recover? Yes. Nor does this alone mean the end of this bull market is nigh. But, it's been an effective early warning sign in the past. So, we'll continue to watch it for future developments.
Public pension funds appear headed for crisis. With growing numbers of underfunded plans. And the nation's unfunded pension liability sitting at $3.85 trillion. Even though stocks sit at record highs.
The problem? At six to seven percent, assumed rates of return were simply too high. And the promises made to plan participants were excessive from the start. Consider Illinois, where 63,000 public employees make $100,000 salaries. Nearly twice the national average. Allowing some of these public employees to retire early. Often in their fifties. Leaving plan sponsors to pay excessive lifetime benefits to already overcompensated employees while bond yields sit near two percent.
But fear not. The D.C. bailout machine is being fired up.
Ohio's own Democratic Senator Sherrod Brown is set to introduce a bill allowing unions to borrow from the U.S. Treasury to stay solvent. All under the guise of the new, Pension Rehabilitation Administration. Because what we need is yet another government agency to absolve the government's own mistakes. Which is the equivalent to placing a band-aid on top of a band-aid. All of which will likely lead to another money printing fiasco involving tax-payer funds for problems many saw developing years ago.
More on Illinois' Big Government Woes here.
Last week marked the one-year anniversary of Donald Trump's White House victory. A year in which stocks have propelled higher. CNBC reported that the 21.2 percent S&P 500 gain represents the third largest since Eisenhower took over for Kennedy (26.5 percent) and George H.W. Bush took the reins from Carter (22.7 percent).
Of course, the second year of presidential terms tend to be less positive. With markets averaging 8.4 percent in the first year of a president's term. The second year has been a less dazzling 0.62 percent.
Of course, as Trump's year two begins, our team seeks to allocate larger portions of investment capital to well-valued overseas opportunities. Of which there are many. Even as the S&P 500 has now gained 17 percent on the year, look at what has transpired abroad. With Italy up 41.7 percent year to date. India up 31.51 percent. Germany up 30.2 percent. France up 30.8 percent. And China having gained 26.6 percent this year.
Which S&P 500 positions have maximized investors returns? The names won't surprise you. Comprising a who's who of big tech, financials, healthcare and defense.
And whilst most will believe the time has passed to benefit by these and other high-flying stocks, keep in mind that the percentage of adults invested in the stock market remains at a 20-year low. Translation? While stocks have performed well, the public remains mistrustful and pessimistic. About as euphoric as a stomach ulcer. Which will likely lead to further gains until everyone, pension funds managers, accountants, housewives and schoolmarms capitulate and buy equities. The trendline remains upwards and right.
The Middle East? Still a powder keg. And the right spark could set it aflame.
Saudi Arabia appears to be heating up its proxy war against Iran. Taking the battle to Lebanon, as opposed to allowing Iran to contain the fight in Yemen. Rumor has it that an air passage has been opened from Saudi Arabia through Jordan and Israel, and into Lebanon. Where the House of Saud may plan to attack targets belonging to Iran's proxy army, Hezbollah.
Weekly Results
Major indices finished down last week. The DJIA lost 0.55%. The S&P 500 fell 0.20%. The Nasdaq descended 0.20%. While small cap stocks lost 1.30%. 10-year Treasury bond yields rose 7 basis points to 2.40%. Gold closed at $1,276.08, up $6.36 per ounce or 0.50%.

Securities offered through Dempsey Lord Smith LLC – Dempsey Lord Smith LLC, Rome, GA Member FINRA / SIPC / MSRB.

Advisory Services offered through Dempsey Lord Smith, LLC, an SEC Registered Investment Advisor. Clearing through and accounts held at Charles Schwab & Co., Inc.

Dempsey Lord Smith, LLC nor Hyde Park Wealth Advisors LLC provides tax or legal advice and you should consult your accountant and/or attorney if considering an investment of this type. Hyde Park Wealth Advisors LLC is not controlled by or a subsidiary of Dempsey Lord Smith LLC. Investing in Alternative Investments come with a variety of risks that could result in a complete loss of principal investment.

Alternative Investments offered as private placement securities are offered only to qualified accredited investors via confidential private placement memorandum. Income and returns are not guaranteed and there are no assurances investments will meet their stated objectives.

© 2024 Hyde Park Wealth Advisors. All Rights Reserved