Displaying items by tag: bull market

(Washington)

President Trump threw out an idea for a tax cut this week, then immediately backtracked by calling it unnecessary. The idea, however, appears sound. Trump proposed a payroll tax cut that would primarily help middle and lower class workers (in addition to a capital gains tax cut via indexing to inflation). That would make a lot of sense right now, as it would increase the spending power of the masses, increasing consumption and inflation, and lowering un-utilized manufacturing capacity.

FINSUM: We really like this idea of a payroll tax cut because it would help reverse some of the adverse affects of the wealth inequality that has built up since the Crisis. The more capital is concentrated in a small pool the less of it gets spent (i.e. a single person can only spend so much), which slows the economy. If you increase the spending power of the majority of Americans a lot more will get spent, boosting the economy.

(New York)

Not a day after warning about the unstable financial practices of S&P 500 companies, Goldman Sachs has just gone on the record saying that the S&P 500 is set for another round of big gains. The bank raised its year-end forecast for the index to 3,100. Goldman thinks that stocks are currently trading at fair valuations, and that “The dovish Fed pivot has driven the equity market rally in 2019, and we expect low interest rates will continue to support above-average valuations going forward”. The bank contends stocks will rise a further 10% in 2020.

FINSUM: We think stocks are going to move in line with the economy. If growth stays okay, and the Fed stays dovish, we are in for a move higher. We think the best odds are for a bull case.

(Washington)

The Fed has historically been the level-headed kid at the party, always trying to calm things down when they got out of hand. But that appears to no longer be the case, as Powell surprised even the most dovish investors with his very soft statements last week. What comes next may shock markets—some think the Fed will make a rare 50 bp cut in their July meeting. How the market would react is anyone’s guess (likely positive initially). “Historically the Fed has wanted shock and awe when they ease”, says the CIO of Northwestern Mutual Wealth Management.

FINSUM: The Fed seems like it wants to go big, despite the fact that unemployment is at record low levels and prices are stable. The central bank clearly wants to keep the bull market rolling.

(Washington)

Jerome Powell’s performance could not have been much better. He gave exactly what the people wanted—dovishness. In fact, if anything, he was almost comically dovish, disregarding the very strong jobs performance last month. No matter though, investors are pleased as it now looks nearly 100% likely the Fed will cut rates later this month, and seems as though they will stay on a cutting path for some time. The Fed’s shift in policy appears to affirm that they are currently considering the condition of the global economy as a major threat to the US.

FINSUM: The Fed is in a pretty easy spot if you think about it. Inflation is very low, markets want cuts, and the global economy is looking weak. Simple solution with no real downside—cut rates.

(New York)

Greedy is not usually a word associated with anything positive, but in this instance it seems fair. What we mean is that the market’s performance through the first half of this year has been so good, that investors need to double down on stocks. That likely sounds counterintuitive, but history tells us otherwise. When stocks have a good first half (and they surely have), then they are 60% more likely to finish the year strongly as well. On that basis it would make sense for investors to put more money into equities or at least don’t take any chips off the table.

FINSUM: We like this logic. While we do have some bearish reservations about the market right now, we think Trump is going to make sure to not do anything to derail stocks, as doing so might derail his re-election campaign.