HBTM: 12/12/2016

How ‘Bout That Market?  This is a question I hear at social gatherings often enough that it makes sense to make it a regular entry on this website.

The Market

The stock markets have been going up since the election.  Is this a Trump rally?  I hesitate to say so as the election still looms large in the rear view mirror.  It’s also worth noting that this gets filed under Obama’s record.  The markets seem to be adjusting quickly to what they expect under a Trump administration.  There is a shift in sentiment from the tech sector to what I’d call Make America Great Again (#MAGA) stocks (industrial and manufacturing – financials, too).  This makes sense from the standpoint that the President-elect focused on these types of businesses during the campaign, but if protectionist policies are implemented, I would expect a negative impact on these companies.  But really, who knows?  What’s clear is that Trump is talking big about change and this has ignited animal spirits on Wall Street.  Companies have been hoarding cash since the financial crisis, executing stock buybacks and mergers rather than investing in their businesses.  Post-election, there seems to be an expectation that companies will be putting that cash to work rather than focusing on financial engineering.  There has been an awful lot of activity considering Trump hasn’t taken office yet and has a track record of doing the unexpected.  Don’t believe anyone who tells you they know what a Donald Trump Presidency means for anything, especially the stock market.

Energy

I find the energy situation more interesting than the stock market.  For the last couple of years, OPEC has maintained production levels as American innovation (fracking) drove oil prices lower.  OPEC’s bet was that cheap oil would crush the American energy revolution as it costs more to produce here than in countries like Saudi Arabia.  This put pain on OPEC countries who need oil to sell at certain levels to meet their budgets.  It looks like the United States won this game of chicken for now as OPEC and some other energy-producing countries have agreed to cut production.  That US energy persevered through this is a great sign that we no longer rely on energy from politically volatile parts of the planet.  It’s nice to be able to get your oil from people who don’t want to kill you.  The Middle East is shrinking from a global concern to a regional one.  At the same time, innovation in renewable energy is not standing still.

The Fed

Futures markets predict a rate hike this week.  The Fed last raised rates a year ago.  They proclaim to be data-dependent, but have moved the goalposts before.  Regardless, it would be a surprise if there was not a 25 basis-point hike.  I wouldn’t call this a hike so much as a short, strongly-telegraphed walk.  I’m not expecting any big market movements in reaction.  Then again, I expected the Cleveland Browns to win at least one game since the rate hike a year ago and that didn’t happen, either.

Do You Think It’ll Keep Going Up?

I think the stock market will be higher ten years from now, yes.  I do not know what path it will take to get there.

The Disclaimer

Nobody knows nothin’.  The above is speculative bullshit.  If I had an inkling of what the market was about to do, I’d be on a beach in Antigua counting my money.  The same goes for your ‘stock guy’ and that dope on TV with the ponytail.  They don’t know what the market will do in the next week, month, year, or even the next 10 minutes.  They don’t even know why the market did what it did yesterday, last month, or last year, but that does not stop them from backfilling a narrative to explain an irrational, open system (as opposed to a textbook world of rational actors where all else is equal).  We humans seek these explanations out to find patterns in an effort to guide our future actions and justify past mistakes.  So why read this at all?  In my experience, 60% of people who raise the topic of investing in a social setting are seeking your approval.  30% are trying to establish themselves as an investing authority so they can sell you something.  The other 10% are genuinely interested in this stuff.  Ideally, this post helps you keep up your end of the conversation.  More importantly, I hope it helps you spot why the discussion turned to investing in the first place.