Anthony Scaramucci is out as White House communications director after just 11 days on the job — and just hours after former Gen. John Kelly took over as President Donald Trump’s new chief of staff. (July 31)
One chaotic development after another may be making headlines out of Washington, but Wall Street so far has not budged.
So why even bring up the potential for August Angst as the Dow flirts daily with the 22,000 milestone?
The year has turned out to be a very good one for many investors who regularly put money into mutual funds, 401(k) plans and 529 college savings plans. July’s gains amounted to around 2% for stocks — during what’s typically time for a summer slump.
U.S. stock funds on average gained 10.17% for the year through July 28, compared with 5.91% for the same period a year ago, according to Morningstar.
Most diversified stock funds made some kind of money this year, but nearly half gained more than 10%, according to Morningstar.
By contrast, U.S. investment grade bond funds posted average gains of 2.54% through July 28, compared with 4.51% for the same time a year ago, according to Chicago-based Morningstar.
On Tuesday, the Dow Jones industrial average closed at 21,963.92, up 72.80 or 0.33%.
It’s easy to get overconfident. This bull market turned 8 years old last March, second only to the nearly 10-year bull market from October 1990 through March 2000.
After some crazy headlines lately — like the firing of James Comey as FBI director or the lightning-quick sacking of Anthony Scaramucci this week as White House communications chief — you might wonder why Wall Street is so downright complacent. Just what is holding this whole thing together?
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“We have political fireworks almost every day,” said Sam Stovall, chief investment strategist for CFRA. “And we have geopolitical tension.”
And yet we keep rolling out records on Wall Street.
Worrisome news never went away. Retailers are closing stores and filing for bankruptcy. New car and truck sales seem to have hit their peak and now are pulling back. The GOP so far has failed on a long-promised effort to repeal and replace the Affordable Care Act.
North Korea’s latest test of intercontinental ballistic missiles has many on edge as well.
But Wall Street clearly has seen little reason to panic or some days, even give pause.
Market watchers note that the U.S. economy is showing signs of remaining on solid ground.
Millennials are buying homes. Privately owned housing starts were up 2.1% in June compared to the year-earlier period. Typically, housing starts will decline by double digits year over year before a recession, Stovall noted.
“Housing is a good indicator of consumer confidence. Who is going to buy a house if they’re worried about losing their job?” Stovall said.
Other good signs: strong consumer confidence, as well as upward movement for the Conference Board Leading Economic Index.
David Sowerby, managing director and portfolio manager for Cleveland-based Ancora Advisors, said the U.S. economy is expected to see reasonable growth for the next 18 to 24 months. It could be the end of 2018 before we see any signs of a recession, he said.
Another plus for stocks? Investors remain relatively wary of the next bear market.
“After 8½ years, this is still a mistrusted bull market,” said Sowerby, who is based in Bloomfield Hills. “Because it’s mistrusted, stock prices can go higher.”
Much of the rally has been in anticipation that Washington will ease up on regulations, as well as banking on the possibility that Congress will ultimately enact health care and tax reforms. “The stock market is still reasonably hopeful on some type of tax and regulatory relief,” Sowerby said.
The expectation remains that corporations would get a boost in earnings from corporate tax cuts. After last week’s collapse of the Republican health care bill in the Senate, though, the chances for tax reform come into question.
The White House has called for reducing the top corporate income tax from 35% to 15% to make the U.S. more competitive and boost business investment here. But some are speculating that the top corporate rate might end up being reduced within a range of 20% or 25%.
Leon LaBrecque, CEO of LJPR Financial Advisers in Troy, said Monday that he is increasingly optimistic that the corporate tax rate will be reduced this year. Perhaps, he said, such a tax cut could be tied to a boost in spending on infrastructure.
Even so, market watchers warn that we’ve gone about 17 months — or about three times longer than what’s typical — without seeing a 5% to 10% drop in stock prices or what’s viewed as a typical correction.
“Volatility in stock prices has lessened considerably over the last year, and I do not think this is a permanent change,” said Robert Bilkie, president of Sigma Investment Counselors in Southfield.
“We are trying to condition our clients to be prepared for a return to normal levels of volatility,” Bilkie said.
A pullback in prices remains a risk. But market watchers aren’t expecting a full-fledged bear market that rips 25% or more out of your 401(k) plan.
“We are overdue for what I call re-setting of the clocks,” Stovall warned. “Yet since we see no recession on the horizon, a decline should not lead to devastation.”
Contact Susan Tompor: firstname.lastname@example.org or 313-222-8876. Follow her on Twitter @Tompor.
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