More dovish (than expected) Fed comments contributed to a midday reversal in the averages in Wednesday's trading session. That party contributed to a 20-point reversal in the S&P 500 Index from the morning's lows.
Tactically, I believe that the rally will be short lived and that, the current high end of the recent trading range (since early February), will prove to be difficult to overcome over the near term.
My concerns are multiple.
Most importantly, we are in an advanced economic and market cycle.
The cracks in the foundation of global growth have already surfaced -- seen quite visibly in the submergence of the emerging markets over the last five weeks and the growing signs of ambiguity with regard to world wide economic growth (see this week's European PMIs, the two year low in Citigroup's European Economic Surprise Index and the downturn in the global economic Surprise Index).
With interest rates and inflation rising and the Federal Reserve retreating from QE -- the liquidity that provided a catalyst to the near decade Bull Market are being removed.
Consequentially, the three-month Treasury bill yield (1.93%) now exceeds the dividend yield on the S&P Index.
T.I.N.A (there is no alternative) has been replaced by C.I.T.A. (cash is the alternative)
"The President's tax plan will help companies in my district like Harley-Davidson."
-- Speaker Ryan
I am less optimistic than most on the contribution (and "trickling down") to the Average Joe of the corporate tax rate reductions. (Remember Harley-Davidson's (HOG) optimism on the President's tax plan? This week the company announced the closing of a large plant and job cuts. That's after Harley-Davidson announced a $700 million share buyback!)
"Conditions for a bear market are not present."
-- Lee Cooperman, Fast Money Half Time
I watched with interest my good pal and iconic investor Lee Cooperman make some mildly constructive comments on the markets on CNBC Tuesday. Lee says we can predict interest rates and earnings (with some certainty) but we can't predict some other things (political, geopolitical, etc.)
My concern is that those "other things" have consequence and the risks of adverse outcomes (regarding these "non core" factors) are increasing -- this adds meaningful uncertainty that can ultimately impact profits and the trajectory of economic growth.
Specifically, I have serious concerns that the White House will contribute to increased economic uncertainty and a new regime of market volatility (as witnessed Thursday on the the president's cancellation of the North Korea summit) -- as hastily crafted policy, conflated with politics, is potentially dangerous in a flat and networked world. Recognition that the interest of Russia, China and the U.S. are not aligned represents increased risks -- particularly when White House policy seems to be created on a napkin.
Numerous other market headwinds exist -- as discussed often in my diary -- but for the purpose of brevity I will reserve that for another time!
(This column originally appeared on Thursday, May 24, on Real Money Pro, our premium site for Wall Street professionals and active traders. Click here to get great columns like this from Doug Kass, Jim Cramer and other writers even earlier in the trading day.)