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

Trump Reforms Define the Day

To start the week, US stocks appeared to be in a consolidative mode following the shellacking in new home sales and speculation that Trump tax cuts would be pushed back into 2018. By Wednesday, however, that weakness in stocks was arrested by the FOMC meeting, which turned out to be a complete non-event, and then by a series of bullish headlines that hit the tape early Friday morning. Among them was a decent rise in January US non-farm payrolls of 227,000 amid questionable wage growth, a BoJ emergency intervention, and a repeal of several orders/laws on Capitol Hill, chief among them an overhaul of the Dodd-Frank Act. I would mention earnings if they were a driving force, but besides the select few (the FANGs and Apple, etc.), I don’t believe they have been good enough in broader terms to move the markets meaningfully higher.

In any case, stocks finished the week mixed, with the Dow, S&P 500, and NASDAQ relatively unchanged. The same could be said about fixed income markets worldwide, though there appeared to be a continued shift away from riskier debt (PIIGS and France) to that of Treasuries, British Gilts, and German Bunds. Italian and Spanish bonds seem to be on the verge of a freefall, and that’s speculation on my part, simply because their movements of late appear to be detached from the general markets. Crude oil rose nearer to $55/bbl. on rumored OPEC cuts and new sanctions against Iran (for nuclear tests) by the US Treasury Dept., while the metals gained in steady fashion, with gold adding 2.34% to silver’s 1.91%.

It’s hard to say whether stocks will continue to rally from here. Especially when the bond markets of the world are providing more than enough in the way of a headwind to offset any cost savings derived from deregulatory maneuvers. That, combined with a delay in tax cuts (and possibly fiscal spending), which by the way was the sole reason for this rally in the first place, weighs in favor of lower stock prices from here. But thus far, rational observations such as these have yet to dent the mood in stocks, so we’ll just have to wait and see what the action brings to us as we head into next week.

Best Regards,

David Burgess
VP Investment Management