The market has been seeking a new catalyst for gains – but bonds are foiling its every move! The truth of the matter is that the jury is out as to exactly at what point bonds will be too alluring to let stocks rally. With every investment, its current value is the expected cash flow from all future yields, be it appreciation, dividends or interest, and with Trump creating waves and the market in a funk, some investors are beginning to think that at 3% a year, you can’t go wrong placing your money in Uncle Sam! Warren Buffett, the Oracle of Omaha and one of the most successful investors ever, says that nothing could be farther from the truth, but when all is said and done, you and every investor and trader like you, has to make a personal decision where to put one’s money to work, and now the tide seems to be turning.
There are – when push comes to shove – just so many risk factors out there, from a trade war in the works, to geopolitical realignments, to heightened isolationism and a U.S. president constantly chasing his tail, often at odds with his own party, and a Congress possibly turning Democrat. There really is no way to know where the market is headed in the short-run, in the next year or two. Over the long-run, it’s a surefire bet that the stock market will beat out the bond market, but in the short-run, we may see more and more collateral damage from a Trump-inspired trade war that has seen so many twists and turns that it’s hard to trust the news, where even real news seems like “fake news.” Trump and China’s Premier, Jinping, both play to the media, making promises, false and true, as the market goes up and down like a rollercoaster with Trump’s every new tweet and Jinping’s newest pronouncement.
As for a 3% yield on the bond market – the 10-year T-bond hit 2.99% on Monday – that, more than anything is what investors and traders will be watching today.
Cresset Wealth Advisors CIO, Jack Ablin, noted that he doesn’t think 3% is such a big deal. “This is probably just a point investors have to digest. I think 3 percent isn’t the problem — 3.50 is.” BTIG Chief Equity and Derivatives Strategist, Julian Emanuel, sees things, for one, differently. “Taking the chart back to 1994, you’ve broken the down trend line if you start trading over 3 percent. What it means is the psychology changes. In our view in July 2016 that was likely a generational low in yields.” He expects a time correction – one marked by sideways trading over time – rather than a price correction.
One of the stocks to watch today will be Wells Fargo (WFC), which has been fined $1 billion over lending issues. Activists will be marching on the company’s annual shareholder meeting, with sister protests taking place around the U.S. The company’s woes have included fraud, consumer banking scandals, labor practices and collaborative efforts with the NRA.
Google parent, Alphabet (GOOGL), is another stock certainly worth watching today; the company saw a huge uptick in profits despite internet privacy fears. The company, though, spent the most it has in its 14-year history as a public company. The company has been under fire from the SEC about the transparency and clarity of its reporting, with revelations coming out in yesterday’s reports about its Nest businesses being less profitable as once expected. The company’s Class A shares are up 25% this past year, far outpacing the S&P 500, which is up 13.7%.
On today’s Economic Calendar, be primed for the Redbook at 8:55, the S&P Corelogic Case-Shiller HPI coming out at 9:00. At the very same hour, the FHFA House Price Index will be released, with new home sales numbers coming out at 10:00. Consumer Confidence numbers will also be released at 10:00.
Tuesday’s Hot Stocks: WHR, AMTD, AMP, GOOGL
Have a great trading day!