It’s the Economy...

Lots of folks are saying the stock market is up too much, and it can’t keep going, but the market is a sidebar to the real story.

You know someone once said: "It's the economy, stupid" and went on to become President of the United States. 

It may be too impolite, but the current president might want to borrow the phrase.  More economic data out this morning underscores the fact the wheels of commerce are moving.  And each day, we are getting more evidence of a strengthening economy.  This week, we’ve seen evidence throughout all niches of the economy:

• Housing
• Manufacturing Sector
• Service Sector
• Auto

The thing is, in some ways, the market is not only just catching up to this reality, but it’s also acting as a harbinger of things to come with respect to the economy.  That was always the traditional roll of the stock market and we might be back there with a long stretch of mania, hysteria, interference and more recently indifference. 

The Great Rotation has begun (right?)

We’ve heard about rotation from bonds into stocks for the last five years, and while there were hints of it from time to time, maybe it’s really happening now.   Stocks have been crushing the performance of the bond market over the last three weeks putting up the best comparison in two years, as investors react to compounding good news and shift to the fast train leaving the station.

Of course, the bond rally is so long in the tooth the big chunks of cash won’t be redeployed for some time.  But, it’s good for equity investors to know trillions of dollars could come in over the next year that put in firm trailing support.

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Ironically, the best performing sector in yesterday’s session were utilities, which once again underscores the cautious nature of this rally.   On that score, there is no irrational exuberance when it comes to the stock market.   On the contrary, the degree of skepticism even from folks that tell me they love and believe in President Trump is astounding.

Crude Oil

Crude inventories declined more than expected, moving West Texas Intermediate higher, but $52.00 has become the big stumbling block.

The good news is inventories are low enough to spur higher crude prices if key players refrain from increasing production.