Predicting The Direction Of The Stock Market And The U.S. Economy

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Centaur Investments
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Summary

  • All major stock indexes hover near record highs, and retail investors are more optimistic than at any time since the dot-com bubble.
  • Household debt balances are now $164 billion higher than the Q3 2008 peak of $12.68 trillion, while the U.S. unemployment rate stabilizes below the long-term natural rate.
  • Broken legislative promises of tax cuts, healthcare, and government spending justify skepticism.
  • Threats of a nuclear war between U.S. and North Korea have been shrugged off by financial markets, as the VIX declines to historic lows.
  • U.S. financial markets approach a pivotal point in history where confidence can erode quickly.

In November 2016, Centaur Investments published a series of market outlook articles under the attention-grabbing title of “Trumped-Up Economics.” The article series was more of an economic outlook rather than an assessment of the Trump Administration. In the article series, the reader was briefed on U.S. economic history, recent political and macroeconomic developments, and concluded with a prediction of the future performance of individual market sectors. As goes with most market predictions, the warnings presented in the article series were mostly ignored by the market, which continued trend higher. Yet somehow, the points laid out in these articles are quite still relevant. This article will recap those important points and, once again, attempt to project how the market is going to perform.

As the third quarter approaches, and the calendar year comes to a close, the market outlook is still highly uncertain. The American public has yet to see realistic public policy reach the floor for debate in Washington. Promises of legislative action to improve healthcare, infrastructure, and tax code have gone unfulfilled. The legislative attempts that were made took place after being rushed through impossible deadlines. So far, the legislative process has consisted of putting documents together in a matter of weeks with little research or consideration given. When thinking about the current political environment, it becomes evident that U.S. financial markets have performed well largely because of decade-long efforts to spur economic activity in the post financial crisis era. President Trump has been extremely fortunate to walk into the oval office just as corporate earnings grew moderately, employment continued to expand robustly, and the nation’s gross domestic product maintained its positive trajectory.

(Source: Bureau of Economic Analysis & St. Louis Fed, chained 2009 USD)

But, obviously, this economic activity is not attributable to the Trump Administration, rather directly attributable to the

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Centaur Investments profile picture
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Centaur Investments seeks to take advantage of temporary security mispricings driven by industry disruption, behavioral finance anomalies, as well as geopolitical and macroeconomic events. Long or short alpha is identified through specific event-driven catalysts or found in special situation stories. Research will dig into a company's industry, history, and management to uncover information that may have been overlooked or forgotten by the market.Disclaimer: The information shared on this website represents the opinions and conclusions as expressed by the author. This content is illustrative and educational and is not a specific offer of products or services, or an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Information presented is believed to be factual and up-to-date, but the author does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.  Past performance is not an indicator of future performance. The reader is cautioned to conduct their own due diligence prior to investing in any securities mentioned in the content published by the author on this website.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Past performance is not an indicator of future performance. This post is illustrative and educational and is not a specific offer of products or services. Information in this article is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Information presented is believed to be factual and up-to-date, but I/We do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Please conduct your own due diligence prior to investing in any of the securities mentioned in this article.

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