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As we exit the dog days of summer, most of Wall Street’s investment elite will head to their second homes in the Hamptons, on the Vineyard, or Nantucket to enjoy the final weeks of the season. It’s part of the natural ebb and flow of activity in New York City — America’s financial center.
And it marks a perfect time for everyday investors to re-assess their investments and ready their portfolios for the post-Labor Day race to end-of-year profit opportunities.
That’s why, in this article, I am going to review how 2017 has played out so far in the financial markets. And I’ll reveal to you my bold prediction for what the rest of the year will bring.
Obviously, 2017 has been a good year for stock investors. The U.S. stock market is up more than 11% so far, as measured by the S&P 500.
Growth-oriented investments are just killing it. The emerging-market ETF (EEM) is up about 24% … the large-cap growth ETF (JKE) is up more than 19% and the tech-heavy ETF (QQQ) is up about 22% so far this year. Wow!
On the other side of the fence, the ultra-conservative iShares 20+ Year Treasury Bond ETF (TLT) has returned about 6.5% to its holders this year, too!
Stocks and bonds both posting significant returns in the same year? That’s unusual. What’s going on?
Let’s look back to the beginning of the year. Then, the biggest story and impact on the financial markets was Donald Trump and his administration preparing to take over the White House.
They were hellbent on fulfilling their fast-action promises to dismantle Obamacare, appoint a new conservative Supreme Court justice, and overhaul the tax code in short order.
Indeed, our new president had four “Trump cards” in his plan to unleash the U.S. economy:
First, reforming the tax system. Specifically, reducing personal and corporate rates.
Second, reducing government regulations on businesses.
Third, allowing the tax-free repatriation of large stashes of corporate cash that’s held overseas.
Fourth, a bold new package of tax credits and fiscal spending. One with the aim of funding up to $1 trillion of investments in airports, roads, bridges and the like.
Where do we stand now?
Well, GOP infighting over healthcare has stalled tax reform. And Trump’s trillion-dollar infrastructure-spending plan remains stuck in first gear. So the president has transitioned to undoing Obama’s legacy through executive order.
And many of his administration’s actions are now snarled in legal challenges that threaten to derail or dilute his goals.
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The mistake too many gold investors make. Let me be clear: I’m not issuing this warning because I think that gold is on the verge of a terrible bear market. Quite the opposite, actually. I believe the next leg up of the bull market in gold is starting RIGHT NOW — and I want to help you avoid a mistake I see far too many gold investors make. — Mike Burnick |
But this lack of progress to jumpstart the economy has been great for the stock market. Interest rates have stayed low and volatility has all but disappeared.
Consider this: The primary way to evaluate market volatility is with the Chicago Board Options Exchange’s Volatility Index (VIX).
The popular press often refers to the VIX as the market’s “fear gauge.” That’s because it tends to spike higher when markets plummet, and fall when investors feel confident.
Here’s how to interpret the VIX: The lower the VIX, the lower the stock-market volatility. On the other hand, a higher VIX means higher stock-market volatility.
For example, when the U.S. markets (as measured by the broad-based S&P 500) trade meaningfully to the downside on any given day or series of days, the VIX typically jumps higher. This recently happened over geopolitical concerns surrounding North Korea and its nuclear capabilities.
Instead of thinking about the VIX just as the stock market’s fear gauge, I look at it as my favorite indicator of how the market feels right now … at this instant. It’s like a doctor taking a patient’s temperature.
And, the VIX has cooled off, recently falling to a multi-decade low. Disregarding the recent North Korea spike — which I expect will pass — the VIX is on a pace to hit its lowest average daily and annual readings EVER.
You can see this in the chart below.
As the chart reports, the average VIX close has been around 20. But so far this year, it’s been just around 11.55. That beats the previous lowest average of 12.39 in 1995. Amazing!
All-in-all, the VIX is saying that fear is not a factor for the U.S. stock market.
But rather than be thankful, some investors fret that this low volatility portends some horrible misfortune.
But for my Safe Money Report subscribers, the recent calm in the markets is PURE BLISS.
That’s because I expect more gridlock in Washington, which means interest rates and volatility will remain low. And as long as these conditions persist, the sky’s the limit for the stock market … especially for those investments focused on growth.
The bottom line: Get long this market environment; just do so in accordance with your own personal risk profile. And consider taking my Safe Money Report for a test-drive, to help you successfully navigate the financial markets in the weeks, months and even years ahead.
Best wishes,
Bill Hall
Bill Hall is the editor of the Safe Money Report. He is a Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Besides his editorial duties with Weiss Research, Bill is the managing director of Plimsoll Mark Capital, a firm that provides financial, tax and investment advice to wealthy families all over the world.
{ 13 comments }
Did not Warren Buffet say something like,
“When people are greedy be fearful; when people are fearful be greedy”
Suggests we should be fearful.
And where is your ‘bold year-end prediction’?
I wish you were right…but I do not think so. Presidents can help an economy but not much. All economies run in cycles….and so does the stock market. And the cycles say that we are bound for a huge downturn. Trump will be blamed for the downfall…but it will occur no matter who is in office.
I believe you are correct. However, I think moving forward, the market will look like a bumpy road going slightly up hill. It will be difficult to make profits. To much panic over any thing that happens! I think President Trump will be able to help the market if he can out last all the extremist negative publicity.
We haven’t heard the last from N. Korea. If Kim gets something from his actions, and the chance of that seems to be improving, he is possibly going to overreact, and grab for more.China has said it will do nothing if the US retaliates to an N.K. attack, but will go to war if there is an attempt to overthrow the N.K. regime. Then there is the S. China Sea problem. Not to mention the probability of the Republican Congress deciding that Trump must go. He is hurting the Party badly, and many congress-people will be sweating next year’s elections. Lots of Black Swan possibilities.
You could very well be right Bill. With all the infighting and the extreme differences in the two parties they may not get much chance to create more problems for the country and the markets. The old adage “the market loves gridlock” may be put to test.
WALL STREET AND ASSUMED CORRELATIONS
You can say the stock market loves Gridlock in Washington and a lack of any real progress on President Trump’s agenda. Sounds good, on the surface. In reality, who says there is an actual connection? You could just as easily say foreign stocks are benefiting from a low dollar, caused by infighting in the U.S. Senate and the Republican Party. In fact, Alibaba has done exceptionally well recently, even as political gridlock and riots ramped-up. Lets see, are riots and civil disorder also good for Wall Street? ( Only if Black Lives Matters do not show-up in the Hamptons this Labor Day). Seems we can find any old potential correlation, positive or negative, to suit our fancy.
Bill
Things seem to have changed since you penned this article. What prediction are you talking about? What effect will the Fed’s quantitative toughening have on the year end performance of stocks/bonds?
Bill, Thank you great lesson. What is your end of year prediction ?
When it comes to the market I always think it’s good to be a contrarian. This market is much higher than it ought to be by ALL measures and people no longer fear. What’s different? Human nature has not changed. Fear WILL come back and when it does . . .
Did I miss something? Couldn’t find the bold prediction.
Please help me find your bold year end prediction in your article??
Historical Fact: ALL of the Stock Market Corredtions, Financal Meltdowns and Depressions in America’s history have occurred under Conservative Presidents and Conservative Majority Congresses. Most recently 1929, 2007…… And now?
Second Historical Fact: $10,000 invested in ONLY Republican Administrations since 1929 would have only grown to $11,000. Factoring inflation, you’d be underwater… The same amount invested in ONLY Democratic Administratons in the same time zone would have grown to roughly $475.000…
So comes the question: What does history suggest for 2017 (and the next 3 years) under the current administration (if that administration is still in office come December)?
Another advisor on this site called July 27th as the top for 2017 and so far he has been right. Could history be about to repeat? Personally, I’m keeping a very close watch. It should be noted that the leading index, IWM (Small Caps) is now negative for 2017..
Ah Oh……. :(