Bull on a Tear – Storm Clouds Loom

Investor’s first read – Daily edge before the open
S&P 500: 2,316
Nasdaq Comp.: 5,734
Russell 2000:1,388
Friday, February 13, 2017 9:12 a.m.
The upleg that started 8 days ago should continue today. The Street is convinced taxes will be cut, regulations designed to prevent a repeat of the 2007-2009 debacle gutted and a big spend on the nation’s infrastructure and military.
All this won’t happen overnight.
The deficit hawks in Congress will balk at anything that increases the deficit. Slashes in regulations will be slow to come and the big spend on the infrastructure will encounter regulatory and regional hurdles.
However, as long as the appearance of some progress is perceived, investors will be scrambling to get on board of something that stands to benefit from these initiatives.
All that appears to be dandy except for several potential shocks to the big picture.
For one, I expect the Trump administration to put the country on a war footing before the mid-term elections to ensure patriotic support. (worked for George W. Bush in 2002.
For another, I expect the strong prospect of trade wars to trigger uncertainty.
Then too, I expect one or more constitutional crises, as the Trump administration strives to break down checks and balances, designed to counter the abuse of power.
As long as the Street sees an opportunity to make money in the market or by way of commissions, it will plod forward.
The Street may change its mind if the Trump administration implodes and it looks like the Republican Party could lose control of the Senate in 2018.
At this point a play hard, but sit close to the exit strategy while maintaining a cash reserve in line with one’s tolerance for risk, will meet most investors’ needs.
Monday is quiet, but the news front stands to get busy Tuesday and Wednesday. Four Fed officials speak starting at 8:50 a.m. with Jeffrey Lacker, followed by Fed Chief Janet Yellen at 10:00, then Dennis Lockhart at 12:50 p.m., then Robert Kaplan at 1:00 p.m..
I don’t expect a rate bump, but Yellen may hint at one if the economy heats up in face of Trump’s planned stimulus.
Wednesday is big for reports on the economy (Consumer Price Ix., Retail Sales, Empire State Mfg., Industrial Production, Atlanta Fed Business, Business Inventories, and the Housing Market Ix.). Thursday we get Housing Starts, Jobless Claims, and the Philly Fed Business, Friday it’s E-Commerce Retail and Leading Indicators.
SUPPORT “today”: DJIA:20,251; S&P 500:2,313; Nasdaq Comp.:5,730
RESISTANCE “today”:DJIA:20,346;S&P 500:2,323;Nasdaq Comp.:5,743
– the prospect of big corporate tax cuts, deregulation, a big spend on the military and the infrastructure and the restructuring of long-standing trade agreements.
-the uncertainties of the repeal of Obamacare
-talk of privatization of Medicare and Social Security
-possible undermining of NATO and the European Union
-a trade war of sorts.
-lifting of sanctions on Russia for its incursion in the Crimea and actions in Syria, adding to questions already breached.
-continued internal polarization of America and the possible extension of such to other countries.
-intense economic stimulation by the Trump/Republican Congress stands to trigger a rebound of inflationary pressures forcing the Fed to bump interest rates sooner than expected.
-an increasing erosion of investor confidence in President Trump
The Trump administration detests checks and balances, and that is precisely why they are in place. Odds favor one or more constitutional crises this year as Trump’s marauders endeavor to impose their far right agenda.
Obviously, the Republican Party has been radicalized. No more reasonable debate leading to a compromise.
This is (so far) a bloodless coup, a rape and pillage of anything that smacks of social services, equal opportunity and compensation for people of color and of other than the male gender.
Conservatives no longer exist. I miss them, at least they were consistent and reasonable within reason. This mob is extreme, and in my opinion un-American based on what our Founding Fathers gave us, all the progress made improving on that since and the hundreds of thousands of lives that were given to preserve all that.
At some point, this disruption will adversely impact the stock market with the potential for a 35% – 45% bear market. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Corporate earnings (updated Feb. 11, 2014)
Factset now sees Q4 earnings for the S&P 500 up close to 5.0% vs. a Dec. 31 projection of plus 3.0%.
Earnings for all of 2016 is now projected to be plus 0.5%.
Q1 earnings are projected to increase 9.9% on revenue growth of 7.5%. Q2 is projected at ao plus 9.1% and 2017 as a whole are projected at a plus10.3% down from earlier estimates of 11.4. Currently, the P/E based on earnings 12 months out is 16.9 x, which compares with a 10-year average P/E of 14.4 and a 5-year P/E of 17.3% well above the 10-year average of 14.4%..
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of January 27, 2017, a reasonable risk is 20,013 a more extreme risk is 19,947 Near-term upside potential is 20,288.
 OPPORTUNITY: RISK: Selective opportunity ! Risk is reality at some point
 CASH RESERVE: 25% – 35%.
 KEY FACTORS: Speculative fever driven by expectations of tax cuts, lifting of regs., and lots of money dumped on economy.
Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Trump’s Dodd-Frank Do-Over Diverted to Slow Lane With Obamacare, Steven T. Dennis and Elizabeth Dexheimer (2/7/2017) and “Trump’s Dodd-Frank Do-Over Diverted to Slow Lane With Obamacare.
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.