June was a politically consequential month, with President Trump meeting with Kim Jong Un from North Korea, the president’s announcement that he will soon meet with Russian leader Putin, the Atlanta Fed announcing the GDP growth of the nation at 4.8% annual rate in the second quarter, and unemployment under 4% (with minority and female unemployment at historic lows). With all that good news, what happened in the stock market? Well… not much. The Dow fell by a half-point, and the S&P 500, NASDAQ and Russell 2000 all ticked up less than 1%. The economy is rocking along and feels great. The stock market is being a little more cautious. The Dow is still in losing territory so far this year (-1.81% thru June), and the S&P 500 is barely up (+1.65%). Small caps and technology are up in the +6 to 8% range.
Politically it feels good and bad at the same time. How can that be? Well, the economy may be humming right along, but the news media is still filing reports that show the president in a negative light 91% of the time (according to the Media Research Center). As an example, when Trump first started calling the North Korean dictator “Little Rocket Man” the main stream media (MSM) breathlessly reported that Trump was headed straight for nuclear war with NOKO. Then when Trump announced he was meeting with Kim, the MSM told us all Trump was in over his head and would be “played” by Kim. And that was after the president got three American prisoners freed from NOKO and they even blew up one of their nuclear testing sites. Because the media is able and seems to relish casting everything Trump does in a negative light, the good economy, the advances toward peace, the destruction of ISIS, etc. doesn’t seem so satisfying.
Then we have the numbers. This stock market bull is 9 years and 3 months old. The 10 year price to earnings ratio is above 32 (historical average is just over 16). The banking sector also just registered its 13th consecutive loss because of a flattening yield curve. But few are paying attention to any of this. 2008 happened so long ago that it’s completely out of sight and mind. But I see it. Because that’s what you pay me to do.
Does that mean I’m a permanent doom-and-gloomer? No, I can’t afford to be. In fact, our short-term, intermediate-term and long-term indicators all just went positive on July 1st for the first time since January. So we have made the changes to our portfolios to reflect these trends. All of this brings me to the Nature of Humans.