Weekend Reading: Losing Faith?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Last week, I penned the following:

“Now, you would suspect the possibility of nuclear war might just be the catalyst to send markets reeling, but looking at the market’s reaction on Thursday, I suspect there will be t-shirts soon reading:

 

‘I survived the threat of nuclear war and the ‘great crash of 2017’ of 1.5%'”

Of course, as markets touched on their 50-dma, the algos kicked in hard on Monday morning sending the markets surging higher. The reason, according to the media, was the reduction in global risk as Donald Trump briefed Kim Jung-Un about the U.S.’s retaliatory response should North Korea decide to attack Guam.

I was able to acquire a copy:

And with that…. “NOMO NOKO” as Kim Jung-Un backed off his more aggressive posture, letting traders rush back into the markets to once again “BTFD.”

That excitement was short-lived.

On Wednesday, following a conflicted response by the White House to the Charlottesville, VA. protest, numerous CEO’s resigned from Trump’s economic council. The resignations eventually led to its full dismemberment.

Surprisingly, and as we have addressed in recent weeks, this was the catalyst that sparked a sharp decline on Thursday? Have investors “Lost The Faith?”

With President Trump embroiled in one entanglement after another and constrained by a deeply partisan legislature, the ability of the Administration to pass legislative agenda seems to be fading. 

The reality is this was the headline. Over the last couple of months, the markets have remained on a weekly “sell signal,” at a very high level, even as stock prices continued to struggle higher amid eroding internal measures. However, the break below the “accelerated advance trend line,” as noted, suggests the current correction could accelerate IF the markets don’t regain their footing by Monday.

One note of importance is that outside of the speculative enthusiasm of investors, there has been a continuing pressure in earnings as the lack of legislative agenda advancement is beginning to weigh on Q3 estimates.

Given the bulk of the upward push in earnings estimates since the election was based on hopes of tax reform/cuts and infrastructure spending, the realization such will not occur soon is elevating the “risk of disappointment.”  Without a driver to push economic growth higher, the market has likely priced in the majority of expectations.

The repricing of expectations could be fairly brutal. 

Just remember, the “running of the bulls” was the method to transport the bulls from the fields to the bull ring where they were killed later that evening.

As with the market, it’s great to be the “bull” until you get to the end of your run. 

Here’s what I am reading this weekend.


Politics/Fed/Economy


Thoughts On Long-Term Investing


Markets


Research / Interesting Reads


“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” – Seth Klarman