Stock Exchange: Finding Trading Ideas in a Low Volatility Market

Ted Williams was a terrific ball player, but he had one tactic that many found…questionable. He almost never swung at the first pitch.

Many short term traders and individual investors could take a lesson. The market has been dragging sideways for weeks. Volatility is low. There’s a great temptation to force in a few trades. It can be difficult to resist.

As we often discuss, successful investors have a system – and they stick to it. That is as true for periods of low volatility as it is for any other market phenomena. Ben Carlson covered this topic recently, calling it “the hardest question in portfolio management.” He opens with a quote by Jim O’Shaughnessy:

“If you don’t have the discipline to stick with your underlying strategy particularly when it’s not going in your favor, it’s nothing. It’s data on a page.”

If you want to match the Splendid Splinter,  you must take what the market is offering. Wait for the right pitch.

This week, we’re joined by Chuck Carnevale himself. Chuck is one of our favorite sources of market wisdom and stock ideas, with a heavy focus on long-term earnings trends, cash flow, and balance sheets.


Our last Stock Exchange considered how to trade a market with a lot of headline risk. If you missed it, please check back and catch up on this important topic.

Market Tech Take

Last week we introduced our proprietary indicator, the market health index (MHI). This is a specialized combination of breadth and strength in our own trading universe. The index remains strong. For contrast, we are looking for alternative technical measures. What is your own favorite indicator?


Let’s turn to this week’s ideas.

This Week—Finding Trading Ideas in a Low Volatility Market


Holmes: Proofpoint Price (PFPT) is my pick of the week. The price on this one has been shifting sideways for months, which creates an attractive buying opportunity.

PFPT pricing is down near the 200 day moving average, and the stock 12% off its all time highs. I’m confident we could see significant gains here over the short term.

Chuck: As a fundamental long-term oriented investor, I like good businesses.  Proofpoint is a young mid-cap company with a lot of debt and a weak earnings record.  But operating cash flows have historically been growing at enormous rates.  Based on cash flow growth, this company looks inexpensive for a high-growth stock. Free cash flow growth has been even better and the company also looks attractively valued based on this metric.

Holmes: I don’t know (or care) much about the mechanics of the business, but all that sure sounds encouraging! Jeff is usually harsher on us.

Chuck: Let’s not get ahead of ourselves. It would be hard to call this a prudent long-term investment.

Holmes: That’s fine by me. I’m only looking at the next few weeks.

Chuck: Well, at least you’re sticking with your method.

Holmes: It’s been working well for me so far.


I’m buying into a long-term position in Sprint (S). Much like last week’s pick, this is another one where the stock is up near its all-time highs. For that reason, I understand I might be criticized for jumping in here. It’s not my ideal situation; but for a long-term investor, this is what opportunity looks like right now. Let’s check the chart:

The trend lines on the 50 and 200 day moving averages  have been steadily rising for almost a year now. I certainly don’t expect the price to triple again anytime soon, but from my perspective this looks like a winner.

Chuck: Sprint reminds me of the old adage “price is what you pay – value is what you get.”  To me the price is high – but the value low.

Felix: Ouch. Isn’t there anything here you like?

Chuck: Not so much. As Kenny Rogers so aptly put it “You gotta know when to hold ’em, know when to fold ’em, know when to walk away, know when to run.”  As a fundamental value investor I believe that the “dealin’s done” on this one.


Ted Williams is one of my favorites! I’ll help clarify your broader point: he always watched the first pitch, but he had a good reason for doing it. He wanted the most information he could get about a pitcher’s performance on a given day.

Here’s where the analogy breaks down. Once you’ve clicked through an order on your Trader Work Station, you’ve probably got the mechanics down. Naturally, I agree with the idea of waiting for the right pitch.

On to business, my pick this week is the Software Cloud and Computing sector. First Trust has an ETF for this, which captures the kind of growth and performance I expect.

For what people are calling a “sideways” market, this sector has been a clear outlier. These stocks are growing faster in 2017 than they did in 2016, and they’re doing it without a significant bump in November.

Chuck: Trying to find the best investments in cloud computing is a cloudy endeavor (pun intended).  You have pure growth stocks such as Amazon, and Google.  In contrast you have stalwarts such as Microsoft, Oracle and IBM.

Oscar: That makes sense to me. How would you break these down?

Chuck: The trick here for fundamental investors is valuation.  IBM and Oracle are reasonable; Microsoft has gotten very pricey as has and Google.  Amazon has scant earnings but generates prodigious levels of cash flow.  To me, it’s tough to find a consistent investment theme in this sector.

Oscar: Point well taken. I have my own special mix of this sector, so I’m reasonably sure I can hit those value picks.


(Commentary translated from various pecks, rapid movements and beeps).

I like Incyte (INCY), but only for the next 10-20 days. The pattern of growth is very attractive to me here. I can handle a brief lull if it’s capped off with a nice spike, and that’s exactly what we’re seeing here.

It may be a bit optimistic, but I’m anticipating that this most recent bump will bring us back to the $150 range.

Chuck: There are no fundamentals supporting this biotech company at all.  This is purely a hope and a dream speculation.  Maybe some of their pipeline will eventually bear fruit.  Nevertheless, the company has suffered losses for years but did begin earning a little money since 2015.

Road Runner: What if I’m approaching this like a short term trader? I might only be holding onto this position a few days.

Chuck: Earnings growth could accelerate in future years but not enough to support current levels.  This is a pure momentum play, a.k.a. a musical chairs stock.  Therefore, you better be sure to have a chair if and when the music stops.

Road Runner: Tough but fair.


Micron Technology (MU) is on a roll. The mid-march pop in price leads me to believe more short term gains could be significant. Is the price high? Sure. That’s my method, and I’m sticking to it.

Chuck: This stock is way too cyclical for my taste.  However, this might make it a short-term trader’s dream stock.

Athena: That’s the idea.

Chuck: Earnings go from losses to huge rates of change of earnings growth and stock prices tend to react over the short run.  I would consider this the classic sardine company that works like this.  I buy a can of sardines for $.50 and sell it to Oscar for $1.  He in turn sells it to Jeff who is hungry for $1.50.  Jeff opens the sardines and finds them rotten.  He complains to Oscar that he sold him rotten sardines.  Oscar then informs Jeff that he doesn’t understand sardines.  There are 2 kinds of sardines, Oscar says, there are eaten sardines and there are traden sardines.  I sold you traden sardines.

Athena: I think I just lost my appetite.


Despite the prevailing mood about the current market, there are plenty of opportunities for goal-oriented investors. The key, again, is to take what the market is giving you. Investors with a robust method should stick to it, even if it’s a bit harder to find new positions. Investors without a robust method probably shouldn’t be making any trades at all.

Chuck’s approach is value based, and that makes his recommendations extraordinarily consistent. Reading between the lines a bit, it’s clear that there’s some upside even in the companies he wouldn’t consider for his portfolio. What’s right for Felix and Oscar might not be a good fit for Holmes. There’s nothing wrong with that. After all, every batter has their own favorite pitch.

Stock Exchange Character Guide

Character Universe Style Average Holding Period Exit Method Risk Control
Felix NewArc Stocks Momentum 66 weeks Price target Macro and stops
Oscar “Empirical” Sectors Momentum Six weeks Rotation Stops
Athena NewArc Stocks Momentum One month Price target Stops
Holmes NewArc Stocks Dip-buying Mean reversion Six weeks Price target Macro and stops
RoadRunner NewArc Stocks Stocks at bottom of rising range Four weeks Time Time
Jeff Everything Value One month or long term Risk signals Recession risk, financial stress, Macro

Background on the Stock Exchange

Each week Felix and Oscar host a poker game for some of their friends. Since they are all traders they love to discuss their best current ideas before the game starts. They like to call this their “Stock Exchange.” (Check it out for more background). Their methods are excellent, as you know if you have been following the series. Since the time frames and risk profiles differ, so do the stock ideas. You get to be a fly on the wall from my report. I am the only human present, and the only one using any fundamental analysis.

The result? Several expert ideas each week from traders, and a brief comment on the fundamentals from the human investor. The models are named to make it easy to remember their trading personalities.


If you want an opinion about a specific stock or sector, even those we did not mention, just ask! Put questions in the comments. Address them to a specific expert if you wish. Each has a specialty. Who is your favorite? (You can choose me, although my feelings will not be hurt very much if you prefer one of the models).

Getting Updates

We have a new (free) service to subscribers to our Felix/Oscar update list. You can suggest three favorite stocks and sectors. We report regularly on the “favorite fifteen” in each category– stocks and sectors—as determined by readers. Sign up with email to “etf at newarc dot com”. Suggestions and comments are welcome. In the tables above, green is a “buy,” yellow a “hold,” and red a “sell.” Each category represents about 1/3 of the underlying universe. Please remember that these are responses to reader requests, not necessarily stocks and sectors that we own. Sign up now to vote your favorite stock or sector onto the list!

Headline Spin — Recession Forecasting is Back!

Investors have learned from both data and personal experience that business cycle peaks (popularly known as recessions) are associated with the most important stock declines. It is natural that any news about a possible recession gets extra attention. There are so many sentiment measures – surveys of different populations, including non-investors – that it is easy to find one that supports any viewpoint.

Since I have recently spoken with several intelligent, but worried investors, my own conclusion is that market worries and Trump angst are at a high point. Consider some evidence. Here is the headline page from a reputable source for professional managers.


The array of front page stories has nothing positive about U.S. equities. Here is a front-page story running yesterday on a social media page.

When you actually read the article, you cannot even find the “R” word! Economist Adam Posen, President of the Peterson Institute, is actually writing about an excessive boom (not mentioned in the headline) which would lead to the inevitable bust when the Fed over-reacts. Briefly put, he expects greater amplitude in business cycle, mostly because of deficits which his organization opposes. Posen has no record of successfully predicting recession. More importantly, his near-term prediction is for a boom.

Why the negative headline, with a worried trader looking at a declining chart?

Here is the next case, sent to me by a reader.

Fed rate hikes + low growth = recession, says stock-market strategist


This article reproduces an almost indecipherable chart that references three recessions in all of history that began after a Fed rate increase when economic growth was low. Of course, the article does not explain it that way. It seems inevitable. The author, a non-economist with no proven record of recession forecasting, does not even make these claims in his original post.

If it has historically taken 11 quarters to go fall from an economic growth rate of 3% into recession, then it will take just 2/3rds of that time at a rate of 2%, or 6 to 8 quarters at best. This is historically consistent with previous economic cycles, as shown in the table to the left, that suggests there is much less wiggle room between the first rate hike and the next recession than currently believed.

I hope the error in this pseudo-math is obvious to my astute readers.

And here is the conclusion, after explaining that all Fed rate-rising periods eventually lead to bear markets:

For now, the bullish trend is still in place and should be “consciously” honored. However, while it may seem that nothing can stop the markets current rise, it is crucial to remember that it is “only like this, until it is like that.” For those “asleep at the wheel,”there will be a heavy price to pay when the taillights turn red.

So to be clear, the author is bullish for the moment, but giving a warning. I guess he will be right either way.

And meanwhile, how does this recommendation compare to the headline in the original article – the one predicting a recession?

Is there another side to this?

If so, it must be infrequent and obscure. I invite readers to send examples. This cannot just be a bullish story with evidence, since that is not spinning. You need to find a bullish headline that is not supported by the underlying facts.


Why the disparity? The truth about recession chances – that we are almost certainly OK for the next year or so – is not an exciting story. Journalists never ask about the record or credentials of sources on technical stories.

Investor Protection

There are two ways investors can protect themselves:

  1. Plow through the entire story, the supporting links, and the bio for the original source. (That is what I do, of course). It helps to know how to spot real experts.
  2. Just ignore these stories – especially when the interview subject is not presented as holding specific and relevant skills and experience. This method will save a lot of time – and also plenty of money!

Actionable Investment Advice

The main educational theme is more significant and potentially profitable than any specific stock recommendation. For those needing a little help in following it through, late stage cyclicals, financials, and technology are all good choices. Bonds and utilities are not.

Weighing the Week Ahead: What Does the Health Care Decision Mean for Stocks?

The economic calendar is light, but it really would not matter. The defeat (via retreat) of the effort to replace Obamacare will dominate financial market stories this week. The pundits will be asking:

What does the health care decision mean for stocks?

Last Week

Last week the news was mostly positive, but irrelevant. Markets were focused on the Obamacare repeal decision.

Theme Recap

In my last WTWA (three weeks ago since my vacation included two weekends) I predicted a discussion about the expected change in Fed policy and the effect on stocks. That now seems like ancient history, but it was a pretty good theme for that week.

The Story in One Chart

I always start my personal review of the week by looking at this great chart from Doug Short via Jill Mislinski. She notes the overall loss of 1.24%, largest since last October. You can also clearly see the Friday fluctuations around the health care breaking news.

Given the time since our last post, let’s catch up with this longer-term chart.

Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read his entire post for several more charts providing long-term perspective, including the size and frequency of drawdowns.

The News

Each week I break down events into good and bad. Often there is an “ugly” and on rare occasion something very positive. My working definition of “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

This week’s news was slightly negative.

The Good

  • Durable goods rose 1.7%.
  • Earnings growth remains solid. Energy has weighed down earnings over the last few years. The general assumption is that earnings estimates are too optimistic. FactSet reports that the expected y-o-y growth in Q1 is 9.1%. You probably do not see that data very often, unless you are wisely following Brian Gilmartin, who has been on top of this story for many months.
  • Rail traffic growth continues although the pace is a bit slower. Steven Hansen has the full story, including charts and analysis.
  • New home sales increased 6.1%. Calculated Risk, the go-to source on housing matters, calls this a solid report. Despite the 12.8% y-o-y increase, Bill notes the downward revisions to prior months. The key upcoming issue is whether builders will provide affordable housing.


The Bad

  • Jobless claims increased to 258,000.
  • Existing home sales dropped 3.0%. This was also a small miss of expectations. New Deal Democrat embraces the overall housing strength, calling this the “least important” housing indicator. Calculated Risk has an important summary about existing sales:

    To repeat: Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. In 2015, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

The Ugly

Hate groups in the U.S. are flourishing. GEI Editor John Lounsbury regularly includes articles that you might miss otherwise, including this important story.



The Silver Bullet

I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts. This week’s award goes to Charlie Bilello, whom we also featured on Stock Exchange. This is double recognition that is unlikely to be repeated!

Why is this so important? Because so many are being “scared witless” (TM OldProf euphemism).

Most pundits, media, “smart money”, experts on valuation have been completely wrong for many years. If you have wisely stuck with the fundamentals, you are called part of a “sucker’s rally.”

For some years, the top “fear indicator” has been VIX. No matter that few understand how it is calculated. The VIX has remained low, despite the insistence of many that risk is high. Instead of accepting the results of an indicator embraced for many years, the true believers take the only course possible: Find a new indicator!

Many of them have seized upon SKEW, which shows that the risk of a crash has never been higher. Bilello’s analysis pushes deeper, asking the excellent question of how predictive SKEW has been in the past.

The conclusion is that widely-perceived fear, whether in regular options or tail risk, does not predict a severe decline.

What does? A business cycle peak (AKA a recession). That is the reason for our careful monitoring of that topic.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can make your own predictions in the comments.

The Calendar

We have a rather light week for economic data.

The “A” List

  • Consumer confidence (T). This is the Conference Board version. Will the amazing strength continue?
  • Michigan sentiment (F). The Michigan version, which includes a continuing panel in the sample, is important.
  • Personal income and spending (F). Until and unless more business spending kicks in, consumers are crucial.
  • Initial jobless claims (Th). The series seems to be flattening at record low levels.

The “B” List

  • PCE prices (F). The favored Fed measure is approaching the 2% target.
  • Chicago PMI (F). Best of the regional indicators gets special attention as a hint about the ISM report.
  • Wholesale inventories (T). Advance Feb data. Desired or undesired? That is always the question.
  • Crude inventories (Th). Recently showing even more impact on oil prices. Rightly or wrongly, that spills over to stocks.


The Fed Speakers Bureaus have been busy. Expect a daily dose of FedSpeak.

Next Week’s Theme

There is little in the way of scheduled fresh news. The health care vote came at the end of the day on Friday. It will be open season for the punditry. Speculating about the President, the legislative agenda, the Speaker, and the market provides plenty of grist. The commentary next week will raise the question:

What does the failure of the Obamacare repeal mean for stocks?

Once again, there is a hidden question which will be the focus for most – the impact on the Trump agenda. While health care is important, the market strength is more related to tax issues and infrastructure spending. Here are the key viewpoints:

  1. The defeat weakens the President and signals lower chances for the economic agenda.
  2. Getting this issue out of the way permits more rapid attention to corporate tax reform.

These issues are most important to those who believe that the post-election rally is all about Trump. More observers are joining me in crediting the stock strength to resolving the election uncertainty and overall economic improvement. Scott Grannis has a helpful chart.

Even the usually sour Barron’s lead column says that an improved global economy accounts for about half of the U.S. stock rally.

Those who focus on the economic fundamentals (nice piece by a semi-anonymous blogger with whom I have corresponded) and corporate earnings emphasize a base of continued modest growth. Improvements in tax policy are an upside kicker. Eddy Elfenbein has his usual incisive and clear explanation of the history of the “Trump trade.”

The single best analysis I saw was from Dan Clifton of Strategas Research Partners. This video is packed with information, so watch it twice and take notes!

What does this all mean for investors? As usual, I’ll have a few ideas of my own in today’s “Final Thought”.

Quant Corner

We follow some regular featured sources and the best other quant news from the week.

Risk Analysis

Whether you are a trader or an investor, you need to understand risk. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update.

The Indicator Snapshot



The Featured Sources:


Bob Dieli: The “C Score” which is a weekly estimate of his Enhanced Aggregate Spread (the most accurate real-time recession forecasting method over the last few decades). His subscribers get Monthly reports including both an economic overview of the economy and employment. (see below).

Holmes: Our cautious and clever watchdog, who sniffs out opportunity like a great detective, but emphasizes guarding assets.

RecessionAlert: Many strong quantitative indicators for both economic and market analysis. While we feature his recession analysis, Dwaine also has several interesting approaches to asset allocation. Try out his new public Twitter Feed.

Georg Vrba: The Business Cycle Indicator and much more.Check out his site for an array of interesting methods. Georg regularly analyzes Bob Dieli’s enhanced aggregate spread, considering when it might first give a recession signal. His interpretation suggests the probability creeping higher, but still after nine months.

Brian Gilmartin: Analysis of expected earnings for the overall market as well as coverage of many individual companies. His most recent post notes that the expected growth rate in S&P earnings is now 8.41% — the highest level since October, 2014.

Doug Short: The World Markets Weekend Update (and much more). His Big Four chart is the single best method to monitor the key indicators used by the National Bureau of Economic Research in recession dating. The latest update now includes most of the February data.

How to Use WTWA (especially important for new readers)

In this series, I share my preparation for the coming week. I write each post as if I were speaking directly to one of my clients. Most readers can just “listen in.” If you are unhappy with your current investment approach, we will be happy to talk with you. I start with a specific assessment of your personal situation. There is no rush. Each client is different, so I have eight different programs ranging from very conservative bond ladders to very aggressive trading programs. A key question:

Are you preserving wealth, or like most of us, do you need to create more wealth?

Most of my readers are not clients. While I write as if I were speaking personally to one of them, my objective is to help everyone. I provide several free resources. Just write to info at newarc dot com for our current report package. We never share your email address with others, and send only what you seek. (Like you, we hate spam!)


Best Advice for the Week Ahead

The right move often depends on your time horizon. Are you a trader or an investor?

Insight for Traders

We consider both our models and the top sources we follow.

Felix, Holmes, and Friends

We continue with a strongly bullish market forecast. All our models are now fully invested. The group meets weekly for a discussion they call the “Stock Exchange.” In each post I include a trading theme, ideas from each of our five technical experts, and some rebuttal from a fundamental analyst (usually me, but sometimes some guest experts). We try to have fun, but there are always fresh ideas. Last week the focus was on dealing with news-driven risk.

Top Trading Advice


Be careful in your backtesting! Sean McLaughlin understands the issues and provides practical advice.

Brett Steenbarger identifies seven training resources for developing traders, including helpful links.

Are you too confident about your skill at technical analysis? Price Action Lab shows how cognitive bias can lead you astray, including some great examples.

Insight for Investors

Investors have a longer time horizon. The best moves frequently involve taking advantage of trading volatility!

Best of the Week

If I had to pick a single most important source for investors to read this week it would Chris Kacher’s popular and insightful chart, spread widely by Sue Chang. The various soft times in market history are considered. My own conclusion is that you had better have a good reason to fight the trend.

Stock Ideas


Deep value in a solar stock? Andrew Bary of Barron’s features SolarEdge Technologies (SEDG), citing a possible 40% upside. He quotes my friend Bob Marcin, who is very fussy about deep value, noting that the company “makes a category-killer product for a secular growth industry.”

Chuck Carnevale considers the implications of rising interest rates for stocks. His wide-ranging analysis, which you should read carefully, looks at historical macro effects as well as analyzing individual stocks like Johnson and Johnson (JNJ), McDonalds (MCD), and other important names.

Josh Brown explains why homebuilders are strong in the face of rising interest rates.

Our Stock Exchange always has some fresh ideas. There are ideas from five different approaches. Our momentum newest member, Road Runner, trades upward-sloping channels, seeking attractive entry points. This week’s idea is Netflix (NFLX). You will probably identify with one of the characters, and your questions are welcomed.

Yield Plays

Blue Harbinger does a deep dive into dividend aristocrats. He begins with the membership of the SPDR Dividend Index (SDY) and then moves to his likes and dislikes. It is an excellent and thorough piece. In a somewhat more speculative vein, Mark has a provocative analysis of CVR Energy (CVI), including Carl Icahn’s involvement and possible link to his role as a Trump advisor.

Simply Safe Dividends provides an absolutely first-rate analysis of the potential for utility stocks. There is a good analysis of the likely impact of higher interest rates, and how to pick companies that will hold up the best. Especially interesting is the argument for keeping some utilities in your portfolio no matter what you expect on interest rates.

Some REITs might be fine, even when rates are rising. Here are ideas from Salvatore Bruno.

Personal Finance

Professional investors and traders have been making Abnormal Returns a daily stop for over ten years. If you are a serious investor managing your own account, this is a must-read. Even the more casual long-term investor should make time for a weekly trip on Wednesday. Tadas always has first-rate links for investors in his weekly special edition. As usual, investors will find value in several of them, but my favorite is the practical tax-time advice on what records you can safely discard. More abstract but very powerful is this discussion of the trade-off between financial assets and human capital.

In his regular column, Seeking Alpha Editor Gil Weinreich raises an important question: Can even the rich afford to retire? He cites several great sources as well as some possible solutions. My advisor colleagues should join me in making this a regular read, but it is usually helpful for DIY investors as well.

If you have been stock on the sidelines, evaluating possible worries, you might want to read my (free) short paper on the top investor pitfalls. It is a good test of whether you can successfully fly solo. Send a request to main at newarc dot com.


Watch out for…


Companies with “suspicious earnings.” Rupert Hargreaves explains the warning signs and provides some starting ideas.

Final Thoughts


Astute and intelligent investors closely follow the news. That will be a special challenge in the week ahead. Most of what you read about the health care decision will be worse than unhelpful. It will steer you astray.

Most sources will discuss what the health care defeat means for Trump or for the Republicans. That type of story is easy to write and invites readers to join in the speculation. The financial outlets might do a little better with some ideas about the impact on tax reform.

The implications for investors demand more sophisticated analysis. This was a test of two things:

  1. The intransigence of the Freedom Caucus
  2. The GOP leadership and the President’s ability to craft a compromise.

If a “layup change” like Obamacare repeal cannot be done within the Republican party, the entire agenda will require some compromise with Democrats.

This affects both the probability of success and the nature of the resulting policies. This conclusion is much more important for investors than the specifics of the health care legislation. It is also more sophisticated than knee-jerk commentary on the change in the “Trump agenda.”


A Conclusion for Investors

I know from my travels and discussions that there is a high degree of market concern right now. Part of it is uncertainty about Trump policies (from investors of both parties), and a general sense that the rally is extended and markets are “high.”

This type of concern is exactly why we must invest based upon data, not emotion.

None of our indicators currently warn about the end of this business cycle. Business cycles do not have an expiration date. They do not die of old age. (Yardeni). These are emotional ideas that feel right, but lack empirical support.

There is plenty of “upside risk.” Earnings growth is improving, even in the environment of modest growth. The recent market strength could go on for years without any policy changes. If some of the Trump agenda (probably with Democratic support) becomes law, it could mean a spike in both economic growth and profits. We already see improved business and consumer confidence.