April 15, 2018 Syria

Risk/Reward Vol. 389

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

Economic and investing fundamentals be damned. I remain of the opinion that this market is about Donald Trump. Except for Friday (discussed below) Trump dominated every day this week. On Monday a bullish market plummeted in the last hour of trading on news that the FBI had raided The Donald's lawyer's office. Tuesday stocks rose as The Donald's tough language seemed to soften China's position on auto imports and patent protection. Stocks fell on Wednesday as our President taunted Syria and Russia to "get ready" for air strikes, and a Trump-frustrated Paul Ryan announced his retirement. Thursday's market rose on a Presidential tweet that the air strikes were not imminent. Mr. Market has become Mr. Trump---unpredictable and mercurial. In fact, although the Dow and the S&P remain within 2% of where each began the year, the Dow has made triple digit moves (some up, some down) in 21 of its last 25 trading days. Exhausting, isn't it.

Given the move against Syria on Friday night, it is likely that market fundamentals will be overshadowed once again by The Donald. But if that is not the case, Friday may be a harbinger. Despite record earnings reported by JP Morgan Chase and others, banks took a big hit with JPM down 2.7% and Wells Fargo down 3%. Officially beating The Street's estimates, they nevertheless disappointed Mr. Market who was looking for considerably more loan growth. This reaction caused John Authers to write in Saturday's Financial Times that any favorable impact that tax reform has had on earnings may already be baked into stock prices. Thus even blockbuster profits may not be enough to spark a rally. Time will tell as earnings season is in full swing next week.

Having spent the past week nursing my mother and her broken wrist instead of vacationing in Sicily, my attitude may be a little darker than usual. But concern is justified. Short term, Paul Ryan's resignation cannot be viewed as good for the equity markets. Clearly, Ryan sees the Democrats taking control of the House (and maybe the Senate) come November. If that occurs, impeachment proceedings likely will ensue plummeting the country and the world into a period of grave uncertainty. And as we all know, Mr. Market abhors uncertainty. Longer term doesn't look so great either. The Pew Research Center just reported that 33% of all 25-29 year olds in the US live with their parents or grandparents---three times as many as in 1970. I leave to you to debate the reasons. But the fact that so many have failed to launch does not portend well for a population that is already demographically challenged.