Big Picture Market Perspectives 2/13/17


February 13, 2017, 3:30pm EST                                                                                       Invest Alongside Billionaires For $297/Qtr


Stocks continue to print new record highs.  Let’s talk about why.

First, as we know, the most powerful underlying force for stocks right now is prospects of a massive corporate tax cut, deregulation, a huge infrastructure spend and trillions of dollars of corporate repatriation coming.  But quietly, among all of the Trump attention, earnings are also driving stocks.  More than 70% of S&P 500 companies have reported.  About 2/3rds of the companies have beat Wall Street estimates.  And most importantly, earnings in Q4 have grown at 3.1% year-over-year.  That’s the first consecutive positive growth reading since Q4 2014/ Q1 2015.

Meanwhile, yields have remained quiet.  And oil prices have remained quiet.  That’s positive for stocks.  Take a look at the graphic below …

You can see, stocks and most commodities continue to rise on the growth outlook.  Yields and energy should be rising too.  But the 10 year yield has barely budged all year — same for oil.  Of course, higher rates, too fast, are a countervailing force to the pro-growth policies.  Same can be said for higher oil too fast.  With that, both are adding more “fuel” to stocks.

On the rate front, we’ll hear from Janet Yellen this week, as she gives prepared remarks on the economy to Congress, and takes questions.

She’s been a communications disaster for the Fed. Most recently, following the Fed’s December rate hike, she backtracked on her comments made a few months prior, when she said the Fed would let the economy run hot.  She denied that in December.  Still, the 10-year yield is about 10 basis points lower than where it closed following that December press conference.  I wouldn’t be surprised to see a more dovish tone from Yellen this time around, in effort to walk market rates a little lower, to take the pressure off of the Fed and to continue stimulating optimism about the economy.

On Friday we looked at four important charts for markets as we head into this week:  the dollar/yen exchange rate, the Nikkei (Japanese stocks), the DAX (German Stocks), and the Shanghai Composite (Chinese stocks).
With U.S. stocks printing new record highs by the day, these three stock markets are ready to make a big catch-up run.  It’s just a matter of when.  And I argued that a positive tone coming from the meeting of U.S. and Japanese leadership, under the scrutiny of trade tensions, could be the greenlight to get these markets going.  That includes a stronger dollar vs. the yen.    All are moving in the right direction today.

On the China front, we looked at this chart on Friday.

As I said, “Copper has made a run (up 10% ytd).  That typically correlates well with expectations of global growth.  Global growth is typically good for China.  Of course, they are in the crosshairs of Trump’s fair trade movement, but if you think there’s a chance that more fair trade terms can be a win for the U.S. and a win for China, then Chinese stocks are a bargain here.”

Copper is surged again today on a supply disruption and has technically broken out.

This should continue to spark a move in the Chinese stock market.

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