Investment Commentary & Outlook - January 25, 2018

We are in the midst of the strongest start to a year that we can remember. When we screen new stocks for our portfolios each week, we typically find a few good candidates per month. However, in the past couple of months, we have been overwhelmed with numerous new prospective new buys. What is happening is that the breadth and power of the overall stock market has expanded dramatically. This is unprecedented, since normally as a stock market moves higher, it becomes increasingly narrow.

So, the stock market has essentially shifted into a higher gear and is accelerating faster than anyone could have imagined. Wall Street is clearly excited about the strongest quarterly earnings announcements in over six years as well as the windfall 2018 earnings from corporate tax reform.

Even the recent federal government shutdown did not derail the stock market. There is no doubt that capitalism has been unleashed with many accomplished professionals now dominating the White House and Cabinet as we see it. While politics in Washington D.C. today would be best described as season 1 of the reality TV hit show, The Presidential Apprentice, this is just a distraction.

The most important indicator to watch moving forward is the 10-year Treasury bond, which recently hit its highest level in almost 4 years. If the 10-year Treasury bond continues to rise, it will be problematic. However, since our elected leaders are scorned by many, some cynical folks may be secretly hoping for another federal government shutdown, since the longer the shutdown lasts the more that divisive issues (e.g., immigration) may finally be addressed once and for all.

Normally, when the fourth quarter announcement season winds down in mid-to-late February, some consolidation is likely. However, this time around, many companies are anticipated to issue positive first quarter guidance due to their windfall profits from corporate tax reform. Furthermore, . . . read more

Download the Market Outlook Letter — January 25, 2018