The Dow rallied more than 400 points on Monday before settling +336 points after tumbling out the gate with a 150-point decline.
There was still a cautionary component to the session, which drove a 2% gain in the safety of utilities, but other sectors stood out as well.
Financials rocked, led by insurance names in response to AXA’s takeover of Capital Ltd (XL) and real estate investment trust, including Crown Castle Int’l (CCI), climbed for investors seeking yield. Caterpillar (CAT) and John Deere (DE) led Industrial names that shook off the prospect of a higher input cost.
The stock market is back to its winning ways, but volatility remains, and key indices are all still stuck in trading bands. The long-term trend of higher-highs and higher-lows are still in place.
However, the moment of truth is coming soon where the market turns to retest recent highs or fails to hold at recent correction levels.
For the Dow Jones Industrial Average, the magic number on the upside is closing above 25,710 while 23,860 must hold.
There is a ton of data out this week, including the jobs report on Friday. Investors will continue to grapple with the noise from economic purists on trade policy while we get measures of how the economy is doing in real-time.
As for tariffs and trade, I find it amazing how all the talking heads claim the market rebounded because of signs that President Trump isn’t going to go through with tariffs.
These are the same experts that were somehow caught off guard last week when the tariffs were announced despite repeated promises on the campaign trail, and from key trade players in the administration.
Give me a break. If you think Paul Ryan or Big Business somehow “talked sense” to President Trump, he has a clear idea what he wants to do, and unless Mexico and Canada play ball, there will be action.
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Banks Allowed to Lend
The war on banks championed by Elizabeth Warren culminated in the Dodd-Frank legislation in 2010 had the effect of drying up access to lending by the very people that needed loans the most. The so-called stress test that has followed has been an absolute joke. The assumptions are off, and they underestimate how people react during financial meltdowns.
Currently, 38 banks have to go through stress tests as the threshold begins at $50 billion in assets, and mistakes admitted to, by no less than Barney Frank himself.
Dodd-Frank Burdens
The legislation created 147 new regulations, forcing banks to hold more assets.
Compliance cost the industry $38.9 billion and 82.9 million in paperwork-burden hours.
Imagine if that money was available to lend to Main Street instead; well, it will be once the Economic Growth, Regulatory Relief and Recovery Act is passed. That will free 25 large banks to do business with Main Street. To underscore just how bad of a deal Dodd-Frank has been for Main Street, the bill has 12 Democratic co-sponsors.
January Consumer Lending
- Small banks (less than $10 billion) approved 49.1% of consumer loans (most since October 2014 = 50%)
- Large banks (more than $10 billion) approved only 25.1% of consumer loans
Early strength continues in semiconductor names and Chinese stocks, but the biggest news of the morning is North Korea signaling a willingness to come to the negotiating table. Of course, there is skepticism, but this is a huge announcement nonetheless.
My investment thesis always begins on the foundation of peace, because without it, there can be no board prosperity or opportunities to improve lives.
In addition, there’s a report that Gary Cohn has arranged a meeting with President Trump and CEOs from steel-consuming companies for Thursday. Also, reading between the lines this week, it sounds like the administration will carry on NAFTA talks for another month or two, which could mean a delay in tariffs on Canada and Mexico.
Or, it could mean they are announced but not enacted immediately.
We get the latest on factory orders later this morning.
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