Federated Investors' Senior Equity Strategist, Linda Duessel comments on the election, market volatility, stabilization in the U.S. Manufacturing sector and more in her Weekly Update.
"This was a meeting-packed 5-day mad race crisscrossing North Carolina, with visits in Charlotte, Winston-Salem, Greensboro, Raleigh, Wilmington back to Raleigh…then Winston-Salem and finishing in Lake Norman. Everywhere we went the weather was perfect, the food was fabulous and the advisers and end clients were so welcoming. We were there on Tuesday’s primary election date. People were mostly amused by this madcap political season. An adviser in Greensboro suggested that once the nominees are selected, their debate should be pay per view. “It would be unbelievable…huge!” Certainly over the weekend the political rhetoric and menace reached a fever pitch and yet, somehow investors are not concerned. Trump is to blame, MoveOn is to blame, Congress is to blame…take a number. How this isn’t a bigger overhang on stocks is beyond me.As Strategas points out, while the S&P is rallying, internals were tepid with 3 to 1 declining stocks vs. advancing stocks. Small-caps were particularly weak, underperforming by more than 150 basis points on poor breadth. Over the last week, small-caps have failed to keep pace and have already given back roughly half of their recent outperformance since the February lows. The 200-day moving average for the S&P is 1999, and because we are above that the technicians are all bullish now. But we still see the market stalling around 2000.
Tuesday was also March 15—the Ides of March—best known as the date on which Julius Caesar was assassinated
in 44 B.C. Now, the biographer Suetonius wrote that Caesar suffered from a receding hairline, about which he was very sensitive. His enemies were said to have made the most of this, constantly making fun of his baldness. He was said to enjoy wearing the laurel wreath (no baseball caps at that time, obv) because it hid his hair loss, and he also combed the thin strands of his hair forward (no hairspray in those days, obv). A seer had warned Caesar that harm would come no later than the Ides of March. On his way to the Theatre of Pompey, where he would be assassinated, Caesar passed the seer and joked, "The Ides of March are come," implying that the prophecy had not been fulfilled, to which the seer replied "Aye, Caesar; but not gone." "Et tu, Brute?" a Latin phrase meaning "You too, Brutus?" purportedly were the last words of Caesar to his friend Marcus Brutus. The quotation is widely used to signify the utmost unexpected betrayal by a person, especially a friend. Although the U.S. Supreme Court has designated corporations as individuals, it’s still not a great idea to think of them as friends. If you did, you might be looking out for Brutus, too, with their massive buybacks to boost their stock prices, because households have $17.9 trillion of equity holdings. The main reason stocks have done so well this cycle is that corporations continue to be huge buyers, says Ned Davis. This cannot be emphasized too much. Historically, the market rewarded companies that bought back their own stock near the bottom of the cycle and once that had passed the interest turned toward organic growth. That’s not been the case this time around and the payoff from buybacks has held up, as it’s seen as the least of the capital allocation evils. Someday the era of bountiful free cash flow will end, it just doesn’t look like it’s going to be any time soon. Et tu, S&P?
We cautioned advisers the market likely will be volatile through the spring and that perhaps we will reach the 20%
decline from the May 2015 high that would be a cyclical bear, but still within a long-term secular bull." Download below to read full report.
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