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Corporate Earnings Season

4/17/2018

With so many people thinking that we are near the end of the Bull market, it has become the popular belief. Vista Investment Partners indicators are not Bearish however.

The momentum we saw earlier this year was impressive. There were no divergences at the January highs. In my 34 years of experience, that lack of divergence is unusual. I think we will see those highs again, if only to establish the divergences, that we did not see in January.

The third year of a Presidential administration is usually the best year for the market. This is understandable. The sitting president will usually slow the pace of policy change to allow the economy to get back on pace before the election. This reduction in new, or changed policy, allows companies to adjust to each of the policy changes as well, and capitalize on the current more stable environment. We will soon see if this also occurs with the current Trump administration.

Early in my career, I began to see a relationship between the Fed and stock market performance. I read the Credit Markets (interest rates) every day while I was in training. Higher interest rates, through Fed policy, is thought to be the enemy of a Bull market. Today, the Fed is tightening by raising rates. Increasing interest rates are likely to be paused by the announced tariffs. Where is the tipping point?

I find it interesting that few are writing about the drag on the economy that the tariffs will produce. I believe the tariffs will act like a brake to the economy, taking money out of producers’ pockets. The magnitude of the tariffs will determine if the brakes are merely tapped or if they are mashed to the floor.

The quantity of tariffs or brakes applied determines how much the Fed will need to alter the monetary policy in the future to extend this expansion. Let’s hope the brakes are softly applied.

The second quarter is usually a softer quarter than the 1st quarter. I anticipate (hope) the Fed will begin to slow the rate increases around mid-year.

The corporate earnings season is upon us. I believe the first quarter will look pretty good when earnings reports are released. The new corporate tax structure will contribute significantly, though corporate momentum was already strong without this tailwind.

Our opinion is Stay Invested.

Enjoy the ride…r2