Mike Lipper's Blog: Are Investors Seeing a Change? Politicos Are Not

Mike Lipper’s Monday Morning Musings

Are Investors Seeing a Change?

Politicos Are Not

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

Was the latest week instructive?

During the low volume week: the DJIA fell -0.51%, the S&P 500 fell -1.07% and the NASDAQ fell -1.69%. One does not know a trend is over until a meaningful reversal of direction has occurred, which quite possibly was the case this week. On the NASDAQ there were more decliners than gainers, unlike the “Big Board” where there were more gainers. However, since the April 8th bottom, the NASDAQ Composite Index has led the US general stock market, gaining +51.92% compared to +37.02% for the S&P 500 and +28.72% for the DJIA.

The supporters of the political party that currently occupies leadership in both chambers and the White House cheer these recoveries but appear to ignore other data. For example, real private non-residential fixed income investments, excluding data centers, have been flat since 2020 and is far behind 2023 prices.

The Real Problem is Bad Debt Creation

For the “bulls” to be proven right, a large portion of the public’s uninvested money must be corralled to invest in the economy, in sufficient amounts necessary to generate the tax revenues required to support government spending and address the growth of the deficit. Instead, they are doing this by removing the Controller of the Currency and the leverage lending guidelines of the Federal Deposit Insurance Corporation (FDIC), which they felt were too restrictive. To add more fuel to risk capital they are encouraging retail investors to put some of their retirement income savings into private debt investments, even though there has been an increase in bankruptcies over the last four years.

Economic Tailwinds

Optimist believe the economy should have the wind at its back in 2026 due to the following positive events resulting from the “Big Beautiful Bill”. However, it remains to be seen whether these events translate into additional stock market gains or if these events are already reflected in current market prices. Some of these events could also be negatively impacted by Supreme Court decisions on tariffs.

A relatively large number of taxpayers will see tax reductions in 2026, with some seeing tax refunds early in the year.
Reduced regulations should decrease the cost of doing business and speed up the introduction of products to market.
The reshoring commitment of over $18 trillion in manufacturing capacity should boost construction and the jobs required for that task.
AI capacity construction should continue throughout most of 2026.
Energy capacity construction will likely increase in 2026, with the introduction of small-scale nuclear power and construction of a new natural gas pipeline from Pennsylvania to New York.
The House of Representatives passed a $900 billion military budget, which includes pay raises and an increase in defense spending. This bill still needs to go through the Senate before it becomes law. Some of these funds will be used to retool the military for modern warfare, which includes increased use of AI and unmanned vehicles.

Various underwriters are predicting that equity markets will generate double digit rates of return. On a long-term basis this is extremely difficult to do and can only be achieved by accepting the risk of periodic losses. By year end the year the S&P 500 Index could see its third consecutive year of annual gains exceeding 20%. Only once, from 1995-1998, has the market seen a 4-year period of consecutive annual gains of 20%.

Bottom line: Be Careful

Did you miss my blog last week? Click here to read.

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A. Michael Lipper, CFA

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