Slow Recovery – a Foundation for Growth ?

Investor’s first read – Daily edge before the open
DJIA: 18,867
S&P 500: 2,181
Nasdaq Com.:5,321
Russell 2000:1,315
Monday, November 21, 2016 8: 48 a.m.
NOTE: The next post will be November 27
There is a lot of uncertainty accompanying Donald Trump’s election to the presidency. His lack of government experience is one. Running a government is unlike running a corporation where employees do as they are told, or else. Governments require more finesse, and clearly a lot of compromise.
So far, the Street is okay with this, opting to bet on the come and run stocks up. especially ones in industries that appear to be beneficiaries of his presidency.
Investors are faced with a decision to go with the flow, or take a defensive position until more information is known about Trump’s ability to cope with the stresses of the job and persistent opposition by Democrats, certain Republicans, the public, and the Press.
Trump Stocks For Your Portfolio
The headlines are everywhere, “Trump Stocks for Your Portfolio.”
This happened when Obama won in 2008, and Bush in 2000.
The Street’s pros are generally wary about chasing a story or expected development that promises to be a big score for a stock or industry group sometime in the future, but those barriers fade quickly as temptation overwhelms reason, and the stampede begins.
Recently, I mentioned infrastructure stocks as potential beneficiaries under a Trump administration, as well as banks, and drug companies.
Drugs have been getting a big play, since it is assumed there would no longer be the risk of a cap on drug price increases. Yesterday, they were touted as acquisition* candidates*, since the small companies offer the big companies a chance to get into a research area quickly without years of development.
Generally, the drug group is up more than 560% in this bull market vs. 225% for the S&P 500. But, they sold off sharply from a peak in 2015, but seemed to have found a bottom for the past nine months, until the day after election day, when they took off.
These stocks have the potential to really run, primarily because the potential for some is open-ended, maybe they will come up with a cure for one of the big diseases ?
While a drug company’s key products are wading through trials, there is little to stop them, or until a submission gets rejected, then it is a vertical drop, a gap after trading is stopped during the day, or at the open.
All it would take to slow the run of the group as a whole would be for Congress to resist removing the cap on excessive price increases.
For further information and specific stocks, check the MarketWatch article at the end under “Note: Source…..
Corporate earnings.
Factset now sees Q3 earnings for the S&P 500 up 3.1%. On Spet. 30, its projection was for a decline od 2.2%. Q4 is projected at a gain of 3.4%, the year projected to come in at plus 0.1%. Earnings for 2017 are expected to increase 11.4%. Currently, the P/E based on 12 months out is 16.6x, which compares with a 10-year average P/E of 14.3x.
Interest rates
Just in case anyone is interested, Fed Chief Janet Yellen told Congress yesterday to expect interest rates to increase “relatively soon,” referring to a continuation of economic growth and inflationary pressures. With regard to inflation, Yellen said, “We don’t know economically what is going to happen.” (Great !, just what we wanted to hear)
Normally markets take a breather after a sharp run up like this. But the frenzy to get in on what is perceived as a new era for stocks is overwhelming, so the buying should continue, even if from a brief sell off.
The key here is, no one really knows what to expect, so not wanting to risk being left behind, they are buying stocks in what they think will be benefits of a Trump presidency.
Sound investing ? Only if it works.
The economy emerged from the worst recession/bear market 7 ½ years ago. Its growth has been below average owing mostly to the fact a lot of damage was done to our economic structure and consumer confidence.
The seriousness of the Great Recession, cannot be denied. All one has to do is read the last 200 pages of “Too Big To Fail “(Sorkin) to realize the biggest names in banking and finance were in utter panic about survival of their respective institutions and the country, as well. Incredible, unbelievable what happened in seven to ten days. Utter panic.
IMPORTANT: While the economic recovery was below norm, the stock market has not been, rising 227%.
Currently the stock market is overpriced, but can rise higher based on speculative fever.
That 7 ½ years of slow torturous growth could serve as a “base” for a surge in economic activity.
At this point, it’s all a big unknown. The bears say, lookout below !. The bulls say, all clear ahead !
There is a lot of animosity for president-elect Trump, based on an ugly divisive campaign, F.B.I. Comey’s untimely intrusion, and the fact he lost the popular vote by one to two million votes.
But, if money can be made on his election, all but a few investors will go for it. Money rules. Should it be that way ? Depends.
Today, I don’t see a break down – not yes. I won’t be posting until next Monday. The only risk I can anticipate is an abrupt rally failure after a breakout here and a one-day sell off of 200 – 300 Dow points, which would indicate the BIG money is using current strength to bail out.
SUPPORT “today”: DJIA:18,803; S&P 500:2,176; Nasdaq Comp.:5,301
RESISTANCE “today”:DJIA:18,917;S&P 500:2,187 ;Nasdaq Comp.:5,331
The six months between November 1 and May 1, tend to outperform the six months between May 1 and November 1, labelled the “Best Six Months” by the Stock Trader’s Almanac which began tracking the pattern in 1986.
iShares 20-Year Treasury ETF down 14% in 4 months
Long-term bonds have gotten hammered in the last three months. The iShares 20-yr U.S. treasury bond ETF has lost 14.6% since July. That’s nearly 6 times the yield an investor expected over 12 months. Obviously, bonds can be risky. Let’s not forget the name of the game is to buy low and sell high, which applies to long bonds as well as stocks.
A survey of economists reported by Bloomberg yesterday calls for U.S. inflation to surpass the Fed’s target in every quarter of 2017, which if even half true should depress long-term bonds even more.
The Employment Situation report came in Friday, 161,000 jobs were added in October, the unemployment rate was 4.9%.
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 November 11, 2016, a reasonable risk is 18,401 a more extreme risk is 18,354 Near-term upside potential is 19,017
 STATUS OF MARKET: Neutral – trending to bullish
 OPPORTUNITY: RISK: Opportunity !
 CASH RESERVE: 25% – 35%.
 KEY FACTORS: Uncertainty of election to be resolved in two days, earnings slide may be over.
Note: Source of weekly economic calendar and good recap of indicators:
*MarketWatch – Michael Brush – 10 Biotech companies ripe for buyout courtesy Donald Trump
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.

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