America Unleashed! | Crouch Connection, December 2016

AMERICA UNLEASHED!

The “Trump Rally” has certainly been impressive! Regardless of your political persuasion, I would hope you would agree that the stock market has given its approval to the outcome of the election. The Dow Jones Industrials are up almost 200 points (about 10%) since the election and, even more impressively, the Russell 2000 Small Cap Index, an index of smaller companies mostly doing business within the US, is up over 15%, which could be interpreted as a positive indication of optimism by the American business community.

TRUMP BOOM COMING?

Economist and Nobel Laureate Robert Shiller suggested that the Trump election may usher in a housing boom in a CNBC interview:

“There might be a Trump boom coming,” he said. “I’m not forecasting a boom. I find it very hard to forecast at this point in our history because it’s such an important change in government and we just don’t know where it’s going.” The rise in mortgage rates so far this year was “not a big deal yet” and may actually sow the seeds for further short-term gains in house prices. “This thing could feed a boom.”

In a “Seeking Alpha” article entitled “America’s Growth Engine May Be Unleashed in 2017”, Navellier & Associates Senior Writer Gary Alexander postulates that Trump’s efforts to reduce regulations may produce major benefits to the economy. He went on saying, “this regulatory briar patch has grown consistently under Obama’s watch” and quoted “The Economist”:

“After a wave of deregulation in the 1980s, red tape has proliferated, licensing requirements have expanded and legal costs have risen dramatically. Large, entrenched firms — armed with lawyers and lobbyists — are able to navigate this regulatory landscape better than smaller firms.”

He quoted a December 19 Wall Street Journal article titled “Doomed to Stagnate”:

”The latest World Bank survey on the ‘ease of doing business’ shows that the U.S. ranked #3 in the world in 2009, when President Obama took office, but we are now #8. “Eight years ago, 40 days were needed to get a construction permit. Now it’s 81. When President Bush left office, it took 300 days to enforce a contract. Today: 420. As for registering property, the cost has nearly quintupled since 2009.”

“Wall Street Journal writer Brett Stephens continues:

“Today’s snail-paced economic growth, he argues, is the result of the never-ending accretion of ever more costly and time-consuming regulations, all of which could, in theory, be overturned at a stroke. These regulations go largely unnoticed by coastal elites because we’re mostly in the business of producing and manipulating words—as politicians, lawyers, bureaucrats, academics, consultants, pundits and so on. But regulations (and those who profit from them) are the bane of anyone who produces or delivers things: jet engines, burgers, pool supplies, you name it.”

Alexander reasons that a reversal from the onerous and “ever-multiplying regulation” might be the catalyst for new business formation in 2017. In my opinion, American businesses across the nation could easily be encouraged to expand existing businesses and start new ones, if the “briar patch of regulation” is reversed. This means more and better paying jobs for America and more jobs means more money to purchase products and services from American businesses.

MARKET IMPACT

Raymond James Chief Market Strategist Jeff Saut, to his credit, has stated repeatedly that the market low in March, 2009, began a new secular (long-term) bull market that has ‘a lot farther to go’”. On July 25th, he reminded us:

“Secular bull markets tend to last 14-15 years and compound at 16% per year (on average).”

He continued:

“So what's driving this bull market? One of the drivers is that very few believe we are in a secular bull market. This is reflected by the highest cash balances in portfolios since 2001, according to CNBC. This is not the way bull markets end.

Sir John Templeton once said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." Clearly we are nowhere near "optimism" and likely years away from "euphoria."

Recently Saut has been stating that he believes we are moving from an interest rate-driven market to an earnings-driven market. If earnings growth perks up, as Wall Street expects, it could add more fuel to the “Trump Rally”. Typically, the small and mid-capitalization stocks tend to lead the way when a new leg to the upside begins, so the recent market action is an encouraging confirmation that smaller companies anticipate better times ahead.

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Clearly investors are not euphoric…certainly more optimistic, but nowhere near euphoric.

“One of the frustrating things for people who miss the first rally in a bull market is that they wait for the big correction, and it never comes. The market just keeps climbing and climbing.”

Martin Zweig

WRAP-UP

Call us if there is any way we can assist you. We are always happy to meet or talk by phone if you need guidance or a listening ear. We appreciate your continued support and look forward to assisting you in 2017!

Dave Crouch

Financial Advisor

Registered Principal

Any opinions are those of Dave Crouch and not necessarily those of RJFS or Raymond James.

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2000 index is an unmanaged index of small cap securities which generally involve greater risks.