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Market Confusion Reigns: Here’s Why!

Monday, February 27, 2017

Sheila Jamison and Rich Jamison
February 25, 2017

We had another week of hearing the market pundits’ strongly differing opinions of where the market will go next. This schism stems in part from attributing the post-election market rally to President Trump's great promises. Skeptics rightly point out that many of these promises and intentions may turn out to be harder to keep than to promise or intend. There is only so much the executive branch can do by itself. Then, congress comes into play. We’ve been treated to over a decade (maybe two) of how effective they can be. (So that there is no mistake about that last sentence, it definitely was meant to be sarcastic!)

Some pundits point out that the market advance is not purely due to Trump’s election; that the (worldwide) economy and most companies’ earnings are improving. There is truth in this too.

That leads to people lining up on both sides of the equation – those predicting the market keeps rallying and those predicting it tanks! Many bright, experienced and knowledgeable people line up on each side of the argument, some even of celebrity status.

Two brief examples

Jim Cramer’s thoughts and comments that he expressed on his Mad Money show last Wednesday evening were summed up in an article entitled

Cramer spells out why you would be a fool to bet against the market now

(Abigail Stevenson, CNBC.com, February 22, 2017).

Friday, a long-time friend sent us an article that included several ‘big names’ who are lining up on the other side.*

Doubts grow over stock market's Trump-inspired surge — how much more can the "Trump Bump" lift the stock market?

(Associated Press, February 24, 2017 9:57 AM EST, NEW YORK)

Is there any question about why confusion is the natural result among the majority of regular, every day, saving-for-retirement and maybe-make-a-few-bucks-along-the-way investors? If the experts can’t make up their minds, how would anyone know what’s going to happen?**

That’s the bad news. Here’s the good.

All of these predictions are just that, predictions! Their authors all bring good arguments to the table. That’s why it is confusing. Without Carnac the Magnificent weighing in here to settle the debate, how can we decide which prognosticators will be right?

The bottom line is that none of them knows what will happen. Things can go either way. Trump can do many things people don’t like and the market could continue to rise. That doesn’t mean we now need to like them. We just need to separate liking those things from how they affect the market. We expect there will be continued – and maybe increasing – division in Washington. (Yeah, we know. It’s hard to imagine how it could get worse. It’s been like that in the past and, you know what? It seems to have gotten worse.)

That takes us back to our position in last week’s InSights (click here for that article). To the indicators we cited there, let us add positive cash flow. That means we’re seeing cash that has been sitting on the sidelines since the financial crisis continuously coming back into the market over the recent months. More buyers mean more demand, and in the face of constant supply, that means higher prices.

We’re watching what the market is doing and listening to what it is telling us. We act according to this … not according to what we’re hearing from pundits. Will there eventually be pullbacks of some kind? Probably. There always have been. Will one occur soon? That’s the center point of the debate.

Nothing is certain and nobody can predict the future with certainty. For us, we track the weight of the evidence the market gives us. As long as the markets keep trending as they have been – we made several new highs again this past week – we will look to stay with them. When indicators suggest a pullback is in the offing, we’ll adopt actions that are more defensive.

Any questions, please give us a call to talk.

*an interesting note here is the overwhelming pundit lean toward the ‘sky is falling’ side on Friday when the market swooned early and for most of the day. However, the DJIA, S&P 500 and NASDAQ all ended up positive for the day. Moral: don’t get caught up in the hype. Its primary use is garnering viewers, listeners and readers. That’s where the advertising bucks are.

**this helps to illustrate how omnipresent this argument rages. While we were writing this on Saturday morning, Warren Buffett (at the Berkshire meeting in Omaha) just announced his belief that investment gains will continue to be ‘substantial’ and applauded the ‘miraculous’ US economy.

The information and data above were taken from sources deemed reliable. However, no guarantee can be made as to their completeness and accuracy.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Past performance is no guarantee of future results.

© 2017 Jamison Financial Group. Please feel free to distribute copies to individuals you feel may benefit from the information.