FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
August 21, 2018
- Current Stock Bull Market Longest in US History
- Forecasters: Stock Bull Market Has Further to Run
- Another Government Shutdown Possible on October 1st
- NY Governor Cuomo Says America “Was Never That Great”
[timeless]
Q2 hedge fund letters, conference, scoops etc
Overview
The current bull market in US stocks began on March 9, 2009 and tomorrow it will become the longest bull market in America’s history. The S&P 500 Index has advanced over 320% since its low in 2009. And most forecasters believe the market has further to run.
Following that discussion, we’ll look at the likelihood of another government shutdown on October 1. And finally, we’ll look at some truly disgusting and unpatriotic remarks made last week by New York Governor Andrew Cuomo. Let’s get going.
Current Stock Bull Market Longest in US History
Tomorrow, August 22, the current bull market in stocks will become the longest in US history. Barring a breathtaking plunge today or tomorrow, the bull market in US stocks is about to become the longest in history, and optimistic investors argue it still has a long way to go before it ends.
The bull has thrived amid a decade of financial and political upheaval, thanks in part to the all-you-can-eat liquidity feast hosted by the Federal Reserve and other major central banks. Now the Fed has shifted to a tighter monetary policy regime even as the same risks that have dogged this market over the years, including elevated valuations, persist – prompting some pundits to predict an imminent demise of the bull. But that hasn’t happened.
Since March 9, 2009, which marked the low of the financial crisis/recession, and which many consider the birthdate of the current bull market, the S&P 500 Index (SPX) has advanced over 320%, the Dow Jones Industrial Average (DJIA) has risen over 286% and the Nasdaq Composite Index has soared over 521%. Below you can see the lengths of several prior bull markets.
Forecasters: Stock Bull Market Has Further to Run, But…
Most stock market forecasters I read agree that this bull market has further to run. Many believe the S&P 500 Index, currently around 2,850, will top 3,000 before the end of this year. One well-known equity strategist, John Lynch at LPL Financial, argues that the US market still has plenty of upside.
“From tariffs to trade wars to inflation to a flattening yield curve to a global economic slowdown, the headlines continue to cast doubt on the sustainability of this economic cycle and bull market. Although we see several potential stumbling blocks, we continue to believe this economy and stock market rally have plenty of fuel left in the tank,” Lynch wrote recently.
Many analysts agree that the underlying strength in the economy on the back of government spending, robust earnings and improving confidence is expected to carry stocks higher for at least another year, if not longer. One core reason for Lynch’s upbeat outlook is that he does not see the same types of excesses prevalent at previous market peaks, including obvious signs of recession.
“There are several reasons we don’t expect a recession soon. One is that the past three recessions were preceded by annual wage growth of more than 4%. Recent data showed wages growing at 2.7% year over year, suggesting inflation remains tame,” he said.
The strategist also emphasized that the Conference Board’s Index of Leading Economic Indicators, which has turned negative ahead of every recession dating back to the 1970s, has risen an “impressive” 5.8% on a year-over-year basis recently. “While this bull market and economic recovery may very well be old, adding it all up, we see few signs that suggest an end is near,” said Lynch.
I may not be as bullish as Mr. Lynch, but I don’t see signs that a new bear market is imminent. Bullish consensus is still rather low, as you can see below, so it’s not like investors are wildly bullish right now as a group.
I would caution, however, that with stocks clearly over-valued, we could see a significant downward correction at any time – especially with a Fed rate hike likely coming on September 26 and another one on December 19. And unfortunately, it looks like there are more Trump trade tariffs coming down the pike.
Given all this uncertainty and the fact that stocks are over-valued in general, I strongly recommend that you consider some of the “actively-managed” strategies we offer at Halbert Wealth Management. Several of the professionally managed programs will move to the safety of cash (money market) if market conditions warrant.
Another Government Shutdown Possible on October 1
Senators returned to Washington last week after their abbreviated August recess, and House members will return on September 4. When they do, both Houses will have to work together hastily to pass the remaining annual spending bill to fund the government for fiscal year 2019, which begins October 1.
If they don’t, we face yet another government shutdown which could happen on October 1.
As you know, Congress usually comes together at the last moment to avoid a shutdown, but they do happen now and then. But there’s a new wrinkle this time. Back in March, President Trump warned Congress that he would not sign another huge “omnibus” spending bill where lawmakers lump the appropriations bills together into a solitary legislative monster.
Mr. Trump urged congressional leaders to keep their members in Washington in August so they could go ahead and pass some of the spending bills and send them to the White House well ahead of the deadline. Of course, that didn’t happen. By waiting to start until September 4, they will have to hurry.
The other thing different this time around is that President Trump has said he doesn’t care if there’s a government shutdown. He tweeted, “I don’t care what the political ramifications are.” He added that congressional Democrats wouldn’t fix border security and immigration issues “without a Government Shutdown.”
Government shutdowns are familiar to most Americans, but they’re a relatively recent development. They are the result of the Congressional Budget Act of 1974. Since then, Congress has failed to authorize funding for the federal government on 19 separate occasions, the first of which occurred on October 1, 1976. The most recent shutdown started in April 2017.
The first six shutdowns didn’t actually affect the functioning of government at all. It wasn’t until a set of opinions issued by Attorney General Benjamin Civiletti in 1980 and ’81 that the government started treating “funding gaps” – periods when Congress has failed to allocate funds for the ongoing functions of government – as requiring the full or partial shutdown of government agencies.
The bottom line is that we’re going to be hearing more and more about a possible government shutdown in the weeks just ahead. The stock markets tend to get overly volatile in the days leading up to shutdowns. The good news is that stock market losses due to shutdown fears have been fairly modest over the years at an average of -0.6% in the S&P 500.
Yet there were losses of 3-4% in some years, the worst of which was -4.4% in late 1979. It won’t surprise me if this year is worse because of President Trump’s indifference to shutdowns, and the fact that Democrats are adamant they will not work with Republicans on anything. So, keep your seatbelts fastened if it looks like a shutdown at the end of September.
NY Governor Andrew Cuomo Says America “Was Never That Great”
New York’s Democratic Governor Andrew Cuomo came under heavy fire last Wednesday for declaring that America “was never that great” during a stinging rebuke of President Donald Trump. That has to be one of the dumbest and most offensive things I’ve ever heard a mainstream politician say – and could threaten his re-election for a third term (although I sadly doubt it).
During an impassioned speech criticizing Trump’s comments and policies toward women, Cuomo argued the president’s slogan, “Make America Great Again,” is aimed at moving the nation backward on issues of equal rights. Here’s the Cuomo comment in context:
“The simple point is all this comes down to this: We’re not going to make America great again. “It was never that great. We have not reached greatness. We will reach greatness when every American is fully engaged. We will reach greatness when discrimination and stereotyping against women — 51% of our population — is gone.”
It has been widely rumored in recent weeks that Cuomo is considering a run for the Democratic presidential nomination. In my view, he just destroyed any chance of winning the nomination! President Trump wasted no time in blasting the liberal governor:
“‘WE’RE NOT GOING TO MAKE AMERICA GREAT AGAIN, IT WAS NEVER THAT GREAT.’ Can you believe this is the Governor of the Highest Taxed State in the U.S., Andrew Cuomo, having a total meltdown!”
You can bet this news will be part of Mr. Trump’s stump speech going forward, and for many other Republicans running for office in November. It should be!
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All the best,
Gary D. Halbert
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