It's been ages since I have railed against complacency and frankly, I am glad I've held back because the market's had quite a run.
So, I think I have some standing to say that I am worried about things that others don't seem to be as worried about and it's bugging me, making me nervous as I watch this market seemingly begin to take in some facts that aren't so hot for stocks.
First, the S&P 500 is selling at 20x earnings, which is expensive historically in a vacuum. But if you put it against the bond market and those paltry returns it might be justified, because you get more yield out of the average stock than you get from bonds.
I have been saying that the way I have dealt with this expensive market is to say that the earnings will come through better than expected and so far they have, with the beats so far being about 6% better than what the Street's been looking for. But as I said on Friday's "Mad Money" we are now in the soup, the thick of things, where more S&P 500 companies report than any other and I am concerned that there will be as many misses as hits. Witness just Honeywell (HON) and Kimberly-Clark (KMB) reporting at the low end of the range, with an analyst on the Honeywell call noting that Honeywell's growth was so anemic that we haven't seen anything like it since recessionary times. Suboptimal for certain.
Then consider that business and the stock market post-Brexit have been pretty strong, allowing the Federal Reserve to start talking up rate increases again when it issues its statement on Wednesday. Do you want to be big in the stock market ahead of that? We sure don't for my charitable trust, where we are telling readers to keep scaling back and selling into the strength that you get.
But, I don't want to be burying the lead here. Did you listen to Donald Trump this weekend talking about the World Trade Organization, calling it a disaster? Did you hear him at the Republican Convention talking about the repeal of NAFTA?
You want to kill the earnings of the international companies for all but, say, steel, which already has some fair dumping penalties against trading partners and doesn't need more help? You want estimates to be slashed for the majority of companies that sell overseas? You are going to get it with Trump for certain. He's railing all of the time about the Carrier plant that's being shut so a new one can be built in Mexico to take advantage of cheap labor and NAFTA. That's one of the reasons why Carrier parent United Technologies (UTX) has been doing as well as it has. I wonder what the talk will be about this when United Tech reports tomorrow.
Now, have you heard the chatter coming from the Democrats at their convention in Philadelphia this week about potential drug price gauging that has to be stopped? Politico says it won't be prime time, but it's in the platform for certain. Or how about plans for a tax on stock trading in order to cut down on high-frequency trading? I am not a fan of high-frequency trading, but I sure don't want any sort of transfer tax. We have so many people exiting this market as it is. That will just be the nail in the coffin.
Now. I am an equal-opportunity party basher here. Both Party platforms will cut back both the worth of stocks and the earnings per share possibilities. I understand that you may believe that either or both platforms are right for the country. I am simply talking, in this case, about the stock market implications. They are, in a word, bad. And, more importantly, I don't think you can be complacent about them. They will be front and center all week and they are nothing to be complacent about. Yet, it's fair to say that's exactly how we are treating them and the valuations of stocks going into the presidential election.