Market Strategy Radar Screen Weekly March 06, 2017

 Still Bullish After All These Years

We paraphrase songwriter Paul Simon in anticipation of the 8th anniversary of the bull market which rose like a phoenix from the lows of March 09, 2009.

If market tradition were to nickname bull markets the current bull might be appropriately named “the Rodney Dangerfield ‘I don’t get no respect’ market”.

Notwithstanding that likely suitable moniker, we’ve never seen a rising market so prone to constructive self-examination alongside its trajectory evidenced by:

• An ability to repeatedly climb a substantial wall of worry through its tenure;
• a tendency to take advantage of portfolio rotation and rebalancing on a fairly regular basis (risk on risk off);
• a resilience and ability to rally post periods of significant spikes in market volatility (including among others: October 2014, August 2015, January 2016, and June 2016);
• a capability to digest and diffuse commodity price volatility (including June 2014, January- February 2016) as well as defuse what we believe have been misplaced projections of deflation, reflation, and inflation (2013 and 2016); and
• as well as shake off surprising (even jarring) political and geopolitical events (including Greece and other international debt problems circa 2010 and numerous years since, Fiscal Cliff risk in 2012, Government shutdown and default risk in 2013, China currency devaluations 2015 and 2016, UK Brexit vote 2016 as well other outcomes and trends including the recent rise globally in populism, nationalism and opposition to globalization.

So far throughout the nearly eight years of its tenure, the resilience of the bull market has perplexed its detractors, skeptics and bears worldwide.

It has also been the bull market which in our memory has had consistently over its reign a most powerful ally “riding shotgun” over the US economy—the Federal Reserve—which has provided accommodative monetary policy via extraordinary efforts implemented during and since the crisis of 2008. The effects of the Fed’s efforts are evidenced thus far to have been beneficial to the US economy and the markets stateside.

What’s Next?

With the outcome of the recent Presidential election now in the rear view mirror, a business friendlystimulus- focused agenda is in the process of developing its form in the halls of Washington and could appear soon poised to receive the baton to drive growth from the Fed as monetary policy officials move forward with a process of interest rate normalization.

With the US in an apparently sustainable economic expansion based on trends that have developed over the past few years, and an economic recovery that appears more apparent in the international realm from Europe to Asia and elsewhere around the world, investors may find further reason to turn even more positive on stocks.

While Fed funds futures over the course of the past few weeks have moved to levels that signal a progression of from not very likely to highly likely that the Fed would raise rates coming out of the next FOMC meeting on March 15th, this week’s non-farm payroll jobs number, the headline unemployment number and the average hourly wage number will likely be among the deciding factors in what the Fed will do a week from this Wednesday.

From our perch on the market radar screen stocks are likely to react positively over the near term should the Fed decide to raise rates on March 15th. However, should the FOMC decide to postpone raising the benchmark rate, we believe equity markets might react negatively though not dramatically.

Considering the likelihood for at least two of the three rate hikes for 2017 intimated by Fed Chair Janet Yellen and other Fed officials since December of last year, as well as the underlying support from improving economic fundamentals and likely further improvements in corporate revenue and earnings trends this year, the ever so unloved and disdained Bull Market might have more upside than even its earliest adaptors and supporters project.

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