Mike Lipper’s Monday Morning Musings
Expectations: 3rd 20%+ Gain - Stagflation
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
3 ½ Day Trading Week
Normally, in a three and a half-day trading week we expect
low volume and muted news of any significance to investors with less intense
trading instincts and reduced staff levels. This was not the case this past week.
Despite initial unruly Republican Party members in both Congressional houses,
the so-called Big Beautiful Bill (BBB) tax and tariff bill passed with few amendments.
Significant progress was made on reciprocal tariffs and possible trade barriers.
Cease fire agreements in Gaza moved toward peace agreements. One suspects a Russian
economic crunch, continued causalities sustained in the homeland, and the US threatening
reduced US military aid to Ukraine, could hopefully lead to a reduction in
deaths and soon become less of a distraction.
Trading Reactions
Led by favorable reactions to the passing of the BBB that were
cheered on by The White House, many saw things getting better. These reactions stirred
up bullish sentiments resulting in the S&P 500 Index reaching its first
high for the year since February. Some even suggested 2025 could be the third
+20% gain year in a row, a rare event.
Professional analysts and experienced economists are
two-handed thinkers who don’t receive the same air or face time that advocates
of simple tales do. First, the S&P 500 is a capitalization weighted index
with a small number of highly valued stocks recording bigger gains than the
average stock. An equally weighted index gained 5% less than the S&P 500.
More importantly, at least to me, 9 of the 11 industry sectors in the index underperformed
the overall index, with Info Tech and Communications doing better.
Economists often turn to the actions of corporate leaders
for clues as they feel the stock market is too volatile and occasionally wrong
in direction or magnitude. Currently, slightly less than half of publicly
traded companies have announced employee layoffs going forward. Considering the
cost and time spent getting qualified employees, cutbacks are an expensive
strategy companies would like to avoid. Part of their problem is that they
can’t find qualified new employees today, which means it is particularly
painful to let good ones go. This is particularly true for companies with an
aging workforce.
The lack of success in finding good new employees while keeping
the better aging ones is in my mind not a cyclical problem cured by higher
sales levels. It is a secular problem caused by the system we have built, which
has failed us by confusing education with schooling. The problem starts in the
home, often due to a single adult household, and continues on through early
childhood education. The impact is felt all the way through PhD studies, with a
system awarding promotions through test taking rather than productivity and
intellectual integrity.
Historical Lessons
Perhaps we can learn from the past. With that thought in
mind I recommend reading this week’s Barron’s article titled “The Coming
Stagflation Won’t Feel Like the 70’s” by Joseph Brusuelas. I believe there is
another parallel that should be considered, the US with an activist President
and an accommodating Congress. Both the current occupant of The White House and
FDR came into office seeking to make fundamental changes, but both ran into
opposition from the courts. FDR took a recession and turned it into a
depression, not by choice but in part due to the impact of stagflation. I do
not necessarily agree with Joseph Brusuelas’ statistical projections.
What do you Think?
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Analyst Calendar: Preparation for 2026 - Weekly Blog # 895
Mike
Lipper's Blog: Inconclusive Week Hiding a Big Problem - Weekly Blog # 894
Mike
Lipper's Blog: We may think we manage time, but time manages us - Weekly Blog #
893
Did someone forward you this blog?
To receive Mike Lipper’s Blog each Monday morning, please
subscribe by emailing me directly at AML@Lipperadvising.com
Copyright © 2008 – 2024
A. Michael Lipper, CFA
All rights reserved.
Contact author for limited redistribution permission.
Posts
