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High Noon: Stocks Soar as Shutdown Showdown Ends

By John Persinos on January 22, 2018

Now that Wall Street is getting what it wants, it seems to view politics as comedy. For investors, the showdown over the government shutdown was a version of High Noon, starring the Marx Brothers.

Senators on Monday voted to reopen the federal government, ending the standoff between Democrats and Republicans over immigration. The main indices closed higher. But markets were trending higher in the morning, even when a deal was in doubt. Today’s gains were largely driven by fundamentals.

Earnings are strong. Tax cuts are in the bag. Deregulation is on track. These are the factors that matter to investors. Not the farce on Capitol Hill.

European stocks also posted gains. The euro zone is benefiting from economic growth, healthy earnings and falling unemployment. Overseas the reaction was: Shutdown? What shutdown?

Meet your congressmen…

Washington has become a screwball comedy. Except it’s not funny.

Ineptitude continues to plumb new depths. Rancor and mistrust have reached epic levels. Negotiators routinely renege on promises. Integrity is out the window.

As Groucho Marx once said: “Those are my principles, and if you don’t like them… well, I have others.”

Who’s to blame for the shutdown? There’s plenty of finger-pointing. Democrats lay the shutdown at the feet of Republicans. They note that the GOP controls the White House and both chambers of Congress. Trump blames the Democrats for obstructionism.

A shaky compromise was reached today on the sticking point of immigration. The GOP leadership said it would allow a vote on immigration reform in February if Democrats agree to fund the government. Much can still go wrong with the deal.

It doesn’t matter if you’re a Democrat or Republican. You should be dismayed by the slapstick in the nation’s capital. The shutdown was completely unnecessary. It begs the question: what would happen during a real crisis?

The shutdown was treated as big drama on cable news. That’s because the networks are driven by ratings. For traders, the shutdown was a non-event. It needed to drag on for several weeks before it threatened the economy.

U.S. economic growth chugs along. The global economy is vibrant. Fourth-quarter earnings reports have been solid. With 11% of S&P 500 companies reporting actual results, 68% have unveiled positive earnings surprises.

Tax cuts should fuel earnings growth. Analysts project earnings to grow at double-digit levels through 2018. That’s a good thing, because valuations are high. The forward 12-month price-to-earnings (P/E) ratio is 18.4, which exceeds the 5-year average of 15.9 and the 10-year average of 14.2.

This is a busy week for earnings reports, with 79 S&P 500 companies (and 9 Dow components) scheduled to post results. Expectations are bullish.

Another plus: mergers and acquisitions are heating up.

Biotech deals lifted the Nasdaq on Monday. The benchmark iShares Nasdaq Biotechnology ETF (IBB) rose 3.14%.

The market is bracing for merger mania. Tax overhaul will pump cash into corporate coffers. Tech firms plan to bring home the cash hoards they’ve stashed overseas. That money will fund buyouts. The tax bill has winners and losers. Shareholders are big winners.

But an impetus for the rally is FOMO — Fear of Missing Out. That’s not a logical way to invest. Common sense is under attack. The shutdown was an example.

How should you act? Raise cash levels. Stick to quality. Boost your hedges.

The government shutdown should warn you that a financial storm is brewing. When it hits, weak stocks will be washed away.

Monday Market Wrap

  • DJIA: +0.55% or +142.88 points to close at 26,214.60
  • S&P 500:+0.81% or +22.67 points to close at 2,832.97
  • Nasdaq: +0.98% or +71.65 points to close at 7,408.03

Monday’s Big Gainers

Sanofi (NYSE: SNY) to buy hemophilia specialist.

American International Group (NYSE: AIG) to buy reinsurer.

Maker of smart glasses sees new product take off.

Monday’s Big Decliners

Home security firm’s weak IPO weighs on shares.

Analysts sour on restaurant chain.

Decline in smartphone demand punishes electronics supplier.

Letters to the Editor

“Do the stocks of companies that advertise during the Super Bowl go up after the game?” — Mark C.

Companies that run ads during the Super Bowl often see a spike in sales, which can translate into stock gains.

The Super Bowl is the biggest sports event of the year. It typically provides a return on investment for companies that advertise.

More than 100 million viewers gather to watch the best teams compete for the championship in the country’s most popular sport.

Super Bowl Sunday is an unofficial American national holiday. The contest ranks as the second-largest day for U.S. food consumption, after Thanksgiving. It’s consistently the most watched U.S. television broadcast of the year.

This year’s Super Bowl occurs February 4. Companies will pony up $5 million for a 30-second ad. Technology companies will figure prominently as advertisers.

Want to know more about the connection between the Super Bowl and investing? Send me an email: mailbag@investingdaily.com

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.

 

 


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