Mike
Lipper’s Monday Morning Musings
Anticipation
Pays; Deliveries May Not
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
Since last December the bulls have been calling for a drop
in the Fed interest rate. Some anticipated an interim pay-off near the close on
Thursday when the last print on the 10-year yield failed to maintain its
announcement high, fulfilling the dictum of selling on the news. The number of Friday’s
declines on both the NYSE and NASDAQ were above the number of rising prices.
With the much-expected rate cut I found it interesting that the
sample surveys of the American Association of Individual Investors (AAII) were bearish
for the last three weeks. The six-month projections stayed in the 40% range for
all three weeks (42.4%, 49.5%, and 43.4% respectively). In the latest week,
which probably did not benefit from Thursday’s rate cut, the bullish estimate of
41.7% was slightly below the bearish call.
The explanation for the three main market indices rising to
record levels from their April lows this week was the familiar “FOMO”, fear of
missing out. I suspect traders sharing that impulse were largely housed in
retail-oriented wealth management arms of brokerage firms and non-trust
departments of banks.
The battle for investment survival is being waged by armies
marching under the “FOMO” banner, as well as others withholding their purchase
orders upon reading the economic data. There are two ammunition arsenals
safeguarding the non-buyers, the declining number of job-openings and the rise
of non-US traded equities benefiting from the fall of the US dollar. In April
there were 158,000 jobs added, which fell to 22,000 in August. Barron’s shows
the investment performance of 14 local markets in Europe and Asia each week. This
week Europe had 4 risers and Asia 8. Asian and Emerging Market funds were most prominent
among the better performing mutual funds this week.
On a longer-term basis there are a number of worries about
investing in US markets:
- The US market is becoming more speculative, with year-over-year NYSE share volume rising 16.24% and NASDAQ 68.97%.
- The current administration appears to want to reduce the independence of the Federal Reserve.
- The President and SEC are floating the idea of switching from quarterly reporting to semiannual. Both ideas will make foreign-traded issues more attractive than they are now.
- The drive to include non-publicly traded securities in retail accounts, particularly retirement portfolios, is expected to increase the risk of losses.
- The London edition of the Financial Times devoted a full page to the headline “A new era of McCarthyism?”, showing a picture of President Trump and the late Senator McCarthy. This reminds me of sibling rivalry between an older brother and a successful younger brother. With a number of listed London exchange stocks moving to the US there is risk to a portion of the London market.
With the US stock market indices but not the average shares
at record levels and the economy open to question, please be careful.
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