119 Barron’s – Should You Be Nervous?

Podcast Overview:

  • S&P, Dow, Nasdaq, Russell all at record highs last week
  • BofA Merrill Lynch survey of global fund managers:
    • Expect global real economy to strengthen over next 12 months: In october 19% agreed with this, after election 35% do
    • Global inflation expectations vaulted to the highest level since 2004
  • Is all this optimism as sign the bull market will continue or that we’ve reached peak?
  • Are current stock market gains stealing from 2017?
  • Goldman Sachs strategist expects Trump tax reforms to lead to the repatriation of $200B
    • Could be used to pay down raising company debt levels
    • Nonfinancial companies are sitting on $1.6T in cash (12% of assets as opposed to avg of 7%)
  • Goldman expects companies to spend $2.6T of cash in 2017
    • 52% on capital exp, R&D, and mergers
    • 48% on buybacks and dividends
  • Small cap stocks that could benefit from infrastructure spending are stealing attention from multinationals that could be hit by strong dollar
  • Market is behaving like Trump will fulfill promises they like and break the ones they don’t like
  • AAII survey showed bullishness jump from 23.7% to 50% in just three weeks
  • Demand for put relative to calls on SPY shrank to July 2016 levels
  • Too early for bulls or bears to draw conclusions
  • The S&P traded at 28 times earnings in 1999 but “only” 17 times today
  • Stock market cap is 200% of GDP (very high) and interest rates are at record lows and rising fast
    • Can things get more favorable?
  • Concerns over what Trump will do with trade partnerships continues
    • “Protectionist” policies could harm US economy
    • Retaliation from trade partners could be a problem

 

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