Monday, March 20, 2017

Market stable, lacks catalysts

The U.S. equity market is trendless at the moment.  Today was a perfect example.  Across portfolios here very few stocks moved much at all.  Only Apple, up 1%, and financial stocks off broadly, showed any direction.  Among big banks, Citi, BAC, and Wells were all off over 1.5% while the handful of smaller banks followed here were off around 2%.  That's it.  Very few other stocks made any move of consequence.

The market lacks a catalyst.  It is difficult to imagine an event that would drive the market meaningfully higher now.  It's been a good run for reasons that have yet to unfold in a tangible way. Investors seem to feel positive about potential tax reduction and regulatory relief, but most actual actions are yet to take place. Meanwhile the Tweeter in Chief and his minions continue to make unpredictable and at times alarming statements.

In this environment, the more likely catalyst to arrive anytime soon is a push to the downside. Gains have been significant over the last five months, even as they have moderated in February and this month. At signs of concern, the more likely course would be for active investors to take some money off the table that would lead to a noticeable but not particularly damaging retrenchment, some would say one that is needed for a healthy market.

As retail investors apparently continue to reenter the market after years of recession driven fear, this market has a growing base.  It could be obliterated in a few days if institutional investors take a turn. Retail is not important to valuation in any medium term scenario.  Nevertheless, if retail still buys actively managed mutual funds, they will want to see their portfolio managers fully invested at the moment.

We watch with caution, but remain invested.  That's after some careful pruning over the last two months but, oh, with one new major investment.  Can't help it.


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