Will the Stock Market Rally Stall Before the End of 2017?
After a strong downturn in the first full week of August last week, the markets appear to have rebounded. But do the conditions for a continued rise exist? Despite the Dow Jones moving higher again in August in fact, all signs suggest the stock market rally is stalling. That stall mixed with the ever more uncertain political and macroeconomic climate points to uncertainty.
At best, they suggest a stock market crash is coming. At worst, they suggest that the recent U.S. stock market rally could reach the end of the line like a runaway train. It will leave devastation in its wake. For the past few months, retail sales have been better than expected. They may have even registered a slight increase. But retail earnings remain lackluster.
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Target Corporation (NYSE:TGT) had flat earnings year over year. An increase in revenue of about one percent was enough to propel Target stock. Wal-Mart Stores Inc (NYSE:WMT) also had better-than-expected earnings, but most of its improvements were from Internet sales.
Moreover, Wal-Mart, not long ago America’s largest company, issued guidance that failed to excite investors. Any increase in sales may have come at the expense of profits because markdowns and sales have been more pronounced this year. (Source: “This Week: Stocks Falter Amid Trump, Terror, Retail Earnings, But Alibaba Booms,” Investors’ Business Daily, last accessed on August 21, 2017.)
Amazon.com, Inc. (NASDAQ:AMZN), meanwhile, continues to wield retail destruction, threatening retailers of every type. It recently announced it acquired the famous food retailer Whole Foods Market, Inc. (NASDAQ:WFM). But its “Amazon Prime” business can offer goods at such low prices that no retailer can compete. Let alone the efficiency it is pursuing. There’s little doubt that such pressure on prices will put many people out of work. That alone makes for dire stock market crash predictions.
President Trump took the opportunity to challenge Jeff Bezos, the boss of Amazon.com. Trump has some personal issues, given that Bezos also owns The Washington Post, which hasn’t exactly been friendly to Trump’s presidency. Still, just as the controversies over the events in Charlottesville were boiling over, Trump accused Amazon of killing the retail sector, reducing tax revenues, and destroying many jobs.
True or not, the Amazon episode combined with the rest of the controversies has done little to ingratiate the business establishment with the White House—or vice versa, depending on your perspective. The controversy has been dragging Trump down since the electoral campaign. But, now we are witnessing what little goodwill was left crumble.
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One CEO after another is abandoning the Business Development and the related Manufacturing councils. Graham Wilson, professor of Boston University specializing in politics and business relations, said that being associated with the president is just too high a cost for U.S. companies. This has tarnished any idea that Trump is good for business. (Source: “Trump’s Pro-Business Image Tarnished as CEOs Abandon Him,” Bloomberg, August 17, 2017.)
Investors Are Waiting for More Gains Instead of Taking Cover from Risks
For now, business leaders are finding it too risky to hang around Trump. Soon, that could translate into investors finding it too risky to put their savings in the stock market! If Trump—a successful businessman—loses the business establishment’s backing, how can he continue to maintain support from anyone else? That’s what investors will be mulling in the months ahead.
What should we expect in the next few days? The next few days will be a “waiting for Godot” situation; investors might be like the main characters in the famous play by Samuel Beckett. They remain firm in a strange situation, lacking the courage to leave. Investors, like the characters, have been conditioned to expect something important. The investors, of course, are expecting even greater gains. Thus, they are ignoring the signs of trouble all around us.
Steve Bannon, a key Trump aide, has lost his job as Chief Strategist for the President. More than most, Bannon has become a loose cannon, who could make it much harder for Trump to fulfill his agenda. That puts many of the key drivers of the 2017 bull market run in peril. Investors may complain about Trump, but they sure didn’t complain about promises of tax cuts, deregulation, and infrastructure investments.
That could all go up in smoke as Bannon’s departure leaves the President vulnerable to all kinds of media attacks. The Dow Jones index might finally meet its match. The political uncertainty could send the stock exchanges into a spiral as paralysis and increasing chaos takes over.