Healthcare – Finally – May 5, 2017

Healthcare – Finally – May 5, 2017

Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Healthcare – Finally

After a choppy week, most US and overseas indices were able to finish in the black, though by a thin margin amidst mixed news. On the corporate front, Apple’s results disappointed on lower than expected iPhone sales. Some of Apple’s suppliers fell substantially on the news, while Apple’s shares remained fairly steady. None of that should have come as a surprise to anyone following Apple, which has been hiding its weaknesses well lately. What should be a surprise is that the share price for Apple is nearly 40% higher year-to-date as sales are set to stagnate. IBM weighed on the Dow to the tune of about 30 points on Friday when it was announced that Warren Buffet’s group had sold up to a third of its shares in the company. Again, however, bad news continues to be ignored by stock bulls, who seem determined to buy on every dip this market has to offer.

Of course, there were a few things helping the bullish cause, at least from the perspective of a headline. Non-farm payrolls registered 211,000 vs. the 184,000 expected (even though most were low-paying jobs). The House was able to pass the American Healthcare Act, which offers competitive choices designed to save consumers a trillion dollars over the next ten years. Obamacare will continue to exist, but it’s questionable as to how long since folks will no longer be fined for not participating. At this week’s FOMC meeting, Janet Yellen kept rates unchanged while calling first quarter growth a temporary “soft patch.” She reiterated the Fed’s intention to raise rates again in November. Why anyone pays attention to the Fed, especially now, given that they have lost control of just about everything they are said to master, is beyond me. Exhibit A: I don’t recall the Fed predicting the soft patch in the first place. In fact, they raised rates during the quarter because things were supposedly just fine. Nevertheless, the market took the Fed’s word that things will improve.

That put gold and silver on their ear for the week, as gold lost a little over 3.0% to silver’s 4.8%. Oddly enough, that occurred while the dollar fell below 99.0, presumably due to euro strength ahead of French elections next week. Establishment candidate Macron leads Le Pen with 62% of the vote, but, as we’ve learned with Brexit and Trump, such polls mean very little. Moreover, Treasuries were rather flat, though leaning on the weak side of things ahead of this autumn’s desperate need to raise the US debt ceiling somewhere north of $20 trillion. Crude has slipped into the mid-40 range. Bulls want to call it a technical anomaly, but fundamentalists who pay attention to the supply/demand data behind that market know better.

In any case, I thought the stocks would have reason to correct, and gold would start to show support this week. That assessment was wrong, as I did not expect the Fed’s optimism to be taken so seriously. That said, I suspect that the market, having overpriced the very best of every corporate and political outcome possible, is long overdue for a reality check. Still, we may have to wait until a few days after the French election or late June (second-quarter earnings) to see that thesis gain any real traction.

Best Regards,

David Burgess
VP Investment Management


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