Happy New Year!
Johnny B. Goode. Over the past eighteen months, the stock market has risen significantly as the lowering of corporate income taxes and individual American tax payers should inherently improve corporate earnings for the immediate future. Price earnings ratios for domestically based companies will drop from low 20’s to upper teens as tax rates drop from 39% to 21%. The powerful upward momentum being staged by the market points to higher long term economic growth for the U.S. economy and lower unemployment through 2020.
Maybellene. In January, Jerome Powell will succeed Janet Yellen as Chairman of the Federal Reserve. We believe that no dramatic policy changes will occur during the first half of 2018. Current policy has erred on the side of tightening monetary policy. Money supply growth has already decelerated from the 8 to 10% growth after 2009 to the current rate of 4.9 to 5%. We believe that any further declines in money growth will translate into the beginning of an economic recession which more likely should begin early 2019.
Roll Over Beethoven. Small talk at Christmas parties this year centered around Bitcoin and crypto currencies. The evolution/revolution of crypto currencies has gained the attraction of the Futures exchanges hoping to take advantage of the fictional currency which is not regulated nor is recognized as legal tender in contract law. We believe the Federal Reserve, the Securities and Exchange Commission, and U.S. Treasury will act and enforce the U.S. Constitution and remind the U.S. Congress that Congress has the sole authority to coin money. All other competitive currencies do not have Legal Tender. Money laundering laws should take precedence on any unreported cash transactions that send money from one side of the world to another vis a vis the block chain technology. We do not recommend investors buying any of the crypto currencies. We are prohibited from buying any crypto currencies.
Sweet Little 16. As we look into our crystal ball, it is difficult to imagine the market rising as much in 2018 as it did in 2017. We do believe that much of the optimism probably will spill over into the first half as alternative fixed income investments look less favorable should interest rates continue to rise. Rising rates create a catch 22 for stock investments eventually. The subtle inflation has hidden itself within the U.S. Commerce Department’s reporting process. Should unemployment continue to drop and it becomes difficult to hire trained workers, then wage-push inflation would be the real inflation that Fed policy had been hoping for the past several years.
Rock and Roll Music. Not to be redundant, but the bond market should enter into a Bear market in 2018. Today, the Treasury bond market is range bound as yields from 2 years out have risen slightly from a year ago. The short term Treasury bills have seen yields rise from near zero to 1.25%.
School Days. Late business cycles usually lead to mounting inflationary pressures. Therefore, we believe that the market will reward industrials, materials, energy, chemicals, and commodities. Already, the retail spending during the holidays has been reported as the best on record. Consumer optimism has surprised the market as consumer discretionary stocks have seen dramatic moves since Black Friday back in November.
You Can Never Tell. The housing industry continues to show improvement as mortgage rates remain low. With the recent cold air moving into the Eastern part of the country, we believe that energy will have demand pressure pushing up prices in natural gas. Already crude oil supplies are dropping from record highs two years ago. We believe that $60 oil will improve the earnings of most energy companies.
No Particular Place to Go. All aspects of the U.S. economy is experiencing a financial renaissance as eight years of massive monetary growth finally has impacted the economy as U.S. fiscal policy joins the party in promoting economy growth.
Too Much Monkey Business. The past twelve months, the market has not had a correction exceeding 5%. Over and over, the financial press has been suggesting investors to buy on dips. Unfortunately, we have not had any! Conventional wisdom points to a stock market correction. Historically, November to May has been the best season to remain invested. Traditional technical analysts would stay invested due to the scope of this move where multiple industries are making new highs.
Around and Around. Currently, the financial market gets more complicated as more investment options are available in the marketplace. With 4,779 ETF’s (exchange trade funds) and 9,511 mutual funds offered in the U.S., we know that investors have multiple avenues to invest their assets. We continue to be honored to manage your assets and look forward to meeting with you during the New Year to discuss your long term investment objectives.
Russell L. Robinson
Robinson Investment Group
5301 Virginia Way, Suite 150
Brentwood, Tennessee 37027
Titles from songs performed by Chuck
Berry. Chuck Berry passed away March 18, 2017.