Week In Brief: February 22nd

The S&P 500 rose 0.62 percent over last week’s holiday-shortened trading week. Aside from biotech and energy, everything ended higher. Utilities, precious metals, small and mid-caps led the way. The S&P 500 has risen 11.4 percent for the year. Among its better starts in decades. Meanwhile, the DJIA notched its ninth-straight weekly gain. Returning 16 percent over that span.

Positively, the advance has been global.

The Shanghai composite index scored its seventh-straight weekly gain. Having climbed 12.4 percent. Japan’s Nikkei has posted six positive weeks over the last seven. 12 percent above its December low. And European stocks have been higher seven of the past eight weeks. Elevating 12.6 percent since December 27th.

Considering the level of fear engendered during Q4’s precipitous decline, the turnaround since December 26th has been extraordinary. Most asset classes have hurtled higher. While the CBOE Volatility Index (the Fear Index) has declined by two-thirds.

Which brings Mr. Market to mind. A fickle and precarious gent occasionally discussed in these missives, Mr. Market was created by Warren Buffett’s mentor — the father of value investing — Professor Benjamin Graham.

Mr. Market, according to Graham, was a mercurial soul that could be depressed one day, and willing to sell you all his stocks for any price. Yet, the following day, Mr. Market could be manic. Enthusiastically buying everything he could with any capital at his disposal.

At every opportunity, Mr. Market would engage in his favorite pastime: disappointing as many unsuspecting investors as possible. In so doing, Mr. Market might send stocks markedly lower one week. Scaring the hell out of investors who figured the good times were finished. Bringing them to sell their favorite positions for fire-sale prices if only to assuage their fearful souls. Yet the next week, as investors breathed a sigh of relief for having evaded the coming storm, Mr. Market would change his mood. Propelling stocks higher. And bringing those once fearful stock sellers to rue the day their emotions brought them to sell at prices far below current values.

Which reminds us of what has transpired since September. With the S&P 500 losing 16 percent. Bringing every fear-mongering bear-market proselytizer to forecast the End of Days. Leading to more selling and lower prices. Until the day after Christmas. When one last gift-wrapped box beneath the tree was sheepishly opened. From which a return to more bullish times sprang. With markets rising like a phoenix ever since.

Will the good times last?

Last year’s dual 10-percent-plus declines (February and Q4) served to recalibrate valuations. As earnings growth continued. While prices moved sideways and lower. Causing formerly pricey equities to become more reasonably valued. Today, a continuation of earnings growth, coupled with signs of further economic resilience, could be enough to extend the trend. Moreover, a positive outcome to the ongoing China-U.S. trade talks could also send equities higher. As could further news of an accommodative Fed. Regardless, 2,751 was a significant technical level for the S&P 500. Having surmounted that, the S&P 500 appears positioned to continue its upward move.

In D.C., President Trump signed a bipartisan spending bill that keeps the government funded through the fall. While allocating $1.38 billion for 55 miles of border barriers. Far less than $5.7 billion the president hope for.

Staying with politics, it appears that Special Counsel Robert Mueller’s investigation into the 2016 presidential election could be concluding. At which point Mueller’s team will present their findings to Congress. And, perhaps, the public will finally attain a window into the level of Russian meddling. And who did, and did not, collude, abet or assist in those efforts.

Feels like you’ve been reading a book for two years. An epic tome involving myriad characters and plotlines. Riddled with controversy and intrigue. Leaving you to ask, as the final page draws near, will the book’s conclusion support the hype and drama that led to it?

In the “be-careful-what-you-wish-for” category, Amazon pulled out of its development deal in New York. Quashing its $2.5 billion HQ2 in Long Island City, Queens amid negative publicity and concerns over a political backlash.

After the deal was seemingly culminated, state and local leaders seized on the deal’s incentive package. Questioning why one of the world’s richest company was getting subsidies at all. Suddenly, cries of corporate welfare and vulture capitalism became refrains from progressive Democrats within the newly Democratic State Senate. Politicians, together with union leaders, beat the drum about Amazon’s stance against organized labor. Members of the New York City Council joined in. Grilling company executives with hearings in December and January. Even as polls revealed that New Yorkers supported the Amazon campus and the means to acquire it.

Lost in the ideological public relations battle was this: corporate welfare should certainly not be the primary means by which cities attract corporate citizens. But that it, for better or worse, today’s reality. Accordingly, if local leadership wishes to win relationships with big companies seeking new locations, they’ll have to do so according to the means by which the game is played. Not the way we wish it was played. And if it takes $3 billion in future tax credits (not in cash handouts!) to win 25,00 highly-paid, full-time jobs, along with the countless others required to service those new arrivals, meeting their real estate, medical, legal, marketing, entertainment, health and wellness, transportation, nutritional and luxury needs? You do it! Because that $3 billion will be paid back in spades. While Amazon, and its deep pockets, will serve as a model corporate citizen. Helping to propel the region’s level of affluence discernibly higher for decades.

Or, a handful of vocal politicians and citizens with little grasp of today’s economic realities can ruin it for the rest. While also soiling the region’s image. Because who would consider New York over the next decade based upon the goat rodeo with which Amazon was forced to contend.

In geopolitics, China and the U.S. inched toward an agreement aimed at diffusing trade tensions and improving relationships. President Xi met with U.S. Trade Representative Robert Leithauser and Treasury Secretary Steven Mnuchin. Next steps could entail the designation of all commitments to be laid out in a memorandum of understanding. Likely to be announced at a future summit.

One positive aside? Trump agreed to postpone the March 1st tariff increases that had been scheduled to take effect on Chinese goods. Believing that the progress made thus far merited a gesture of good will as both sides continue working.

In the Middle East, Saudi Arabia’s crown prince embarked on a five-country tour through Asia. Intending to nurture alliances there as the murder of a Saudi dissident journalist and the war in Yemen continue to disrupt the Kingdom’s relations with the U.S. and European powers.

Stay tuned…

Weekly Results

Major indices finished up last week. The DJIA gained 0.57%. The S&P 500 rose 0.62%. The Nasdaq went up 0.74%. While small cap stocks gained 1.33%. 10-year Treasury bond yields fell 1 basis point to 2.653%. Gold closed at $1,328.25. Up $6.70 per ounce, or 0.51%.