@theMarket: Markets Are Priced for Perfection

What a week for stock investors! All the main averages and most of the minor indexes registered historic highs. No question, Donald Trump has been good for the markets. The question is when will investors begin to take profits?

Calling a top (or a bottom) in the markets is notoriously difficult. Granted, over the years I have been lucky and managed to catch a turn or two once or thrice. As readers know, once we hit 2,330 on the S&P 500 Index, I expected and still do expect some profit-taking. That doesn't mean you should panic nor do anything more than raise a little cash.

My strategy is to re-employ that cash as we pull back. The timing of such a move is always more of an art than a science. Think of it as a process. Sell a little today, a little more tomorrow, and so on. I'm not looking for a big pullback, maybe 4-5 percent. After the market declines, use the same kind of technique to buy back stock. But don't go overboard because I believe the Trump Rally still has legs.

What, you might ask, has our new president accomplished in order to justify this ongoing rally? Well, aside from a flurry of executive orders that have reversed some of the prior president's executive orders, not very much. But it is what he has promised that has investors drinking the Kool-Aid.  

The litany of tax cuts, infrastructure spending, Obamacare overhaul and an end to onerous rules and regulations has given investors hope. Analysts and pundits are fueling those feelings by drawing up all sorts of "what-if" scenarios that promise good days ahead.

Material, building, construction and defense sectors have skyrocketed in price because of promises of increased defense and infrastructure spending. Forecasters see a big jump in corporate earnings if taxes are cut. As for the impact of less regulation, that is expected to have a beneficial impact on business spending and capital investments.

If the election was about "Making America Great Again" why are overseas markets going up as well? Wasn't President Trump going to launch devastating trade wars with the rest of the world, sending us all down the drain? Others were/are sure that World War III is right around the corner, now that there is a "wild man" in the White House. Yet, global stock markets are going up as well.

One explanation may be that overseas players believe Trump's bark is nowhere near his bite. So far that has proven to be the case. Others are taking heart, hoping that his example will lead to changes in their own countries. One could argue that Brexit began a populist movement worldwide that rejected the status quo, the rule of the few over the many and a revival of capitalism. A case in point is the rise of yet another Trump-like politician in France, where Jean-Marine Le Pen, the far-right candidate of the National Front, looks set to gain even more popularity.

While all of this movement may be intoxicating to market participants, we need to see a little more beef before justifying the present levels of stock prices. I have no doubt that the new administration will get much of what they want done, but it will take time. The market has just gotten a little ahead of itself right now.

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Market Stalls at Record Highs

Stock market averages made another batch of new highs this week only to fall back in what may be buyer exhaustion. If the trend continues, investors may be looking at a 4-5 percent decline from here.

It is too early to tell, because one day does not make a trend. We could easily experience a rebound next week, but I would still consider the present levels of most indexes ripe for a fall. My column last week pointed out that we are now in a "danger zone." Sure, the markets could continue to grind higher but every additional point just sets us up for an overdue correction.

Since all eyes and ears are on Washington, progress on President Trump's agenda is dictating where the markets will trade. Every television appearance and tweet by President Trump simply adds to investor expectations. At this point, investors expect that tax cuts, a wholesale revamp of rules and regulations, plus a multitrillion-dollar infrastructure spending plan is just around the corner. It is not.

For those of us who understand the pace of reform in the nation's capital, it would be best to take a longer-term approach to Trump's agenda. It appears, for example, that health care will be the first area our legislatures will be addressing this year. That does not mean that one day soon Congress will vote on a soup-to-nuts replacement of the Affordable Care Act.

Instead, expect to see a flurry of piecemeal changes over the course of many months. Lawmakers will attempt to address the failings of the present health system without disrupting those who are already members of the Obamacare insurance scheme. That will not be an easy task.

Steve Mnuchin, the new secretary of the Treasury, tempered investors' expectations this week that tax reform would also be a done deal any day now. Instead, he promised "significant" tax reform before the congressional August recess. In my opinion, that is still a wildly optimistic deadline for something that has been talked about, but not acted upon, for many years. And yet, naïve investors were disappointed by the new time frame.

Prospects for infrastructure spending, another of the president's policy initiatives, appears to be fading into sometime next year. That is understandable, given the need to balance the desire to get Americans back to work again with the impact that spending will have on an already-bloated deficit.  

Of course, the problem with that kind of disappointing news is investors have already bid up material, commodity and building stocks to outrageous price levels over the past two months. Given that market participants today are notoriously short-term in outlook, there is a risk that speculators will dump these stocks now and revisit them later (hopefully at a lower price).

And if they do, what's to stop traders from taking down the entire market simply because there may be a time delay between investor expectations and the implementation of Trump's agenda? You can see the risk, and it is one reason that I have turned cautious in the short-term.

Do I believe, like some, that Donald Trump won't be able to pull off his program? No, I don't, but I am realistic about the time required to accomplish his goals. There may simply be a disconnect between what investors are expecting and what I believe can be accomplished in the short-term.

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Danger Zone

"Highway to the danger zone
Gonna take you
Right into the danger zone"

Something new is happening to the stock market, it has actually had two negative days in a row. That doesn't mean much after weeks of gains, but it just may signal a temporary halt to the Trump Rally.

My short-term target in this Trump-inspired rally was achieved this week. The benchmark index, the S&P 500, not only reached 2,330 (my target) this week, but went beyond it. The S&P 500 kept on climbing, reaching an intra-day, record-setting high of 2,351.31 on both Wednesday and Thursday. The index has subsequently fallen back but not by much.

The Dow, NASDAQ, the small-cap Russell 2000 Index, plus a slew of other averages also reached record highs. Make no mistake, that's a good thing. Hence forth, any further gains will put us on a highway to what I call the danger zone.

Like the movie, "Top Gun," we can cruise into the danger zone (where most accidents occur), but as Goose and Maverick discovered, one wrong move can send us into a tailspin. Let me make something clear, however, when (not if) this tailspin occurs, your portfolio will come out of this intact and reach even higher highs over the coming months. That is the reason I have been counseling readers to expect a decline — but not try to play it.

In this Teflon market, little can dent theses gains. There were rumors, for example, that a $4 billion hedge fund was in trouble. The markets barely moved. Then there was Fed Chairwoman Janet Yellen's annual Humphrey Hawkins testimony before Congress. In the past, investors and traders would hang on to every word for clues of what the Fed would do next in the interest rate environment. Today, the Fed's spotlight has been stolen by the actions of our new president.

And speaking of our Top Gun, this week we witnessed some really crazy action coming out of Washington. True to form, "The Donald" in a press conference on Thursday performed another media-bashing episode that sent top network journalists screaming that the president has lost his mind. I found it amusing. Some of Trump's top cabinet choices backed out, another resigned, while the Democrats continued to erect as many barriers to progress that they can. Welcome to Washington.

On the foreign front, President Trump bashed Venezuela's leaders for facilitating drug running, met with Canada's and Israel's leaders, while telling Russians to give back Crimea to its people. None of these events moved the markets. Even the presence of a Russian spy ship, the SSV-175 Viktor Lenov, off our coast could do no more than produce a yawn from the high-frequency traders.

For the markets, it is all about waiting to see what "phenomenal" tax, economic and regulatory reforms will be forthcoming from the White House. To be fair, the Federal Reserve Bank still has a role to play in investors' psyches.  Bond traders are keeping a watchful eye on exactly when the Fed plans to raise interest rates again. Right now, March is off the table and June seems the month of highest probability for another quarter point rise in the Fed Funds rate.

I expect markets to do little until further economic news is released from Trump's team. The response from Congress will also be important. At any time, we could see a pullback because now we are in the danger zone.  But as I have written, it would be a dip that should be bought not sold. Stay invested.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Stock Markets at Historical Highs

The bears headed for cover this week as all three U.S. indexes made new, all-time highs. That's a good sign and augers well for even more upside ahead.

Credit goes to President Trump and his tweets once again. This time, his promises to address tax reform within the next few weeks had the Algos (algorithmic computer software traders) hitting the "buy" buttons on their machines.

Investors (if there is still such a thing) had been worried that Trump and the GOP would get bogged down in Obamacare repeal and immigration issues. If so, that would be a major distraction and might mean that tax reform and fiscal spending would be pushed back to next year or even later. The tweet seemed to put that story to bed, and the rest was history.

Good quarterly earnings have been supporting the over-all market.  Expectations have been for a 6 percent increase in corporate earnings, but that number proved low. Companies have been reporting better than that (7 percent-plus), but forward guidance has been better than expected. Whether it is Trump or the gathering strength of the economy, business executives are more optimistic about the U.S. economy and their fortunes than they have been in years.

Technically speaking, the Dow and the S&P 500 Indexes have established a new trading floor at 20,000 and 2,300. Readers may recall that I am looking at 2,330 as a short-term top in the S&P 500 Index, with the other indexes following suit. The downside, if it occurs, could be in the 5-7 percent range.

Be aware that tagging a short-term top or bottom is notoriously difficult, especially in today's topsy-turvey markets. There have been plenty of warning signs signaling a top, from high levels of positive investor sentiment, to the narrowing of breath within the markets. The problem with all indicators is that things can get even more extreme before a crack appears in the bull's camp.

I would not advise long-term investors to do anything if the markets do decline. It would be just too difficult to game the downside, especially when we have a tweet-happy president who is not above lobbing a bear-killing message tweet in the midst of a market decline. There just seems to be too much risk in not remaining invested.

Over the weekend, President Tump will be golfing in Florida with Prime Minster Shinzo Abe of Japan (after first meeting Abe in Washington, D.C. for talks). The Japanese market was up almost 2.5 percent on Friday in anticipation of the two leaders' first meeting.

There is a lot riding on what happens between the two men, since Japan provides the lion's share of manufacturing jobs within the U.S. and is America's fourth largest trading partner. Aside from the historical relationships between the two countries, everything from mutual defense to currency will be discussed. Let's hope there are no surprises, but anything can happen in this new age of Trump-O-Nomics.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Trump Tweets Tweak Markets

Financial markets, under the new president, continue to react on an hour-by-hour basis to Donald Trump's latest electronic missives. That's no way to conduct business but it is what it is. At what point will traders begin to discount these tweets?

It will take some time, in my opinion, because there has been nothing quite like this in the history of the world. What makes it worse, as it turns out, some of the new president's statements have proven less than factual, while others have clarified the growing mountain of fake news that media outlets appear happy to broadcast. In the middle are the High Frequency Traders and the computer algorithm geeks who find themselves running from one end of the boat to the other as markets gyrate to the political tune of the day.

I have no sympathy for these boys. They have controlled well over 70 percent of the volume in stock markets for years. It was a game they controlled thoroughly. I suspect that may change because Trump's outbursts and actions are so unpredictable that programming computers to react to him is well-nigh impossible. Once enough money is lost in the attempt, traders will learn not to react to all these statements.

In the meantime, readers, we have the advantage. Although this week was chock full of volatility, those who remained invested did OK. Markets held their own moving marginally higher or lower versus last week's close. Part of the reason was better than expected non-farm payrolls, which came in at 227,000 jobs gained versus an expected 175,000.

Overall, U.S. job growth accelerated in January by 1.64 percent. That compares to a 1.5 percent rate in December, but what is even better, in my opinion, is that blue-collar wages jumped by 2.9 percent. That's one for the little guy! To be fair, former President Obama should get the credit for these good numbers, but Trump's blue-collar constituency will give the new president credit for the improvement. There may be some truth in that, since small business owners (who account for the lion's share of America's employment) have become decidedly more positive about the country's future under Trump.

For those who care, there was a lot to hate (or love) about the tweets of the new president this week. Health care (repeal of Obamacare), tax reform (Congress and Trump agree), Iran ("Put on notice"), Australia ("Dumb" refuges deal), Mexico ("Bad hombres") are but a few controversial areas he addressed.

The markets also had to contend with the social unrest brought about by last Friday's executive action on immigration. And let's not forget this week's Berkeley burnings on campus as well as several other university protests over everything Trump. Get used to it.

The most positive aspect of all of these protests and marches is that this nation is finally going to get some exercise. Do not expect this civil disobedience to wane anytime soon. As such, the volatility in the financial markets will continue. What is important, however, is that you do not get sucked into these emotional sell-offs.

You may feel good (or bad) that someone is expressing their outrage over the Trump presidency. You may even be involved in said-outrage but don't carry those feelings over to your retirement portfolios. Instead, try and focus on the economic facts of life. The economy appears to be improving and economists are predicting that 2017 should see a higher growth rate in GDP. Clearly, unemployment is falling, wages are gaining, and this quarter's earnings season is turning out to be better than expected. These are the variables that will determine your portfolio returns for 2017.

Your views on politics and social issues are your own. You may not like what's going on in this country, but as far as your stock market returns are concerned, you can cry all the way to the bank.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.