When the month began, I pointed out the need to get concerned about three events in March. The first was the February jobs report. Strong jobs growth above expectations was welcomed with open arms by the markets. However, it was not enough to move the S&P 500 (SPX) to the black for the week. In doing so, it ended a six-week winning streak for the large cap index. That was a good thing as it helped to absorb any overbought condition the markets may have had.
The other two events were scheduled for this week. On Wednesday, the FOMC will announce its interest rate policy decision. The probability of a 25 basis point rate hike is 100%. What is particularly important to the markets is that equities have absorbed the increased likelihood of a March tightening with a positive tone. History tells us that the equity market performs positively in the early stages of a Fed tightening cycle.
Then there is the debt ceiling. The US Congress voted to suspend the debt ceiling until March 15, the Ides of March. In prior debt ceiling or budget battles, Congress came to blows and the government was forced to shut down. This time around there is little discussion in the financial media or on Capitol Hill with respect to the debt ceiling. While Senate Minority leader Chuck Schumer is making a few threats; there seems to be little appetite for another imbroglio over the debt limit. Furthermore, Secretary of the Treasury, Steven Mnuchin is prepared to take “extraordinary measures” to prevent a debt default. Already, the rating agencies are saying that an increase in the debt ceiling won’t affect the US debt rating.
What seems to be the big topic on people’s minds is the pending snow storm that is about to hit the homeland of Wall Street – the NY Metro area. As a result, I am expecting that for the next day or two we will have a B-team led market as the A-teamers stay home with their families in the suburbs (shoveling snow and filling out their NCAA brackets). I have studied the impact of blizzards on the equity markets and discussed my findings before in My Gut Feeling. The bottom line is that we are likely to have a positive trading session that day after the storm despite all else we expect to hit the markets on the Ides of March.
This time around, I am back home in Nevada, which for my media friends makes me available for remote TV appearances while everyone back in the NY Metro area is snowed in at home.
We should expect more slow and steady upside movement in the equity markets as the slow and steady decline in the bond market continues. By now we have purged all non-convertible non-step up preferreds from our fixed income accounts. Concurrently, we have cut back on fixed income duration to about seven years or less. A good way to get yield and diversified return is to put some capital into the Dow Jones Industrials (INDU). We own a few related exchange traded funds. If you extrapolate what I have done to a vastly larger bond market, you can see why money is flowing from bonds to stocks.
In stocks, we continue to add to leaders and index overlays, like the INDU and SPX. Yesterday we added to positions in Ulta Beauty (ULTA) which we picked up earlier this year, taking advantage of the rebound from the stocks stumble last fall.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long DIA, DDM, SSO, SPXL & ULTA— although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant, beverage and agricultural stocks. An individual subscription to the newsletter can be ordered at www.restaurantstox.com Furthermore; Scott is also a professor at the Seton Hall Stillman School of Business in South Orange, NJ.
– Read Scott’s intra-day thoughts and comments on Scutify for which he is a co-founder of its parent company Wall Street All-Stars, LLC
– You can email Scott at firstname.lastname@example.org
© 2017 LakeView Asset Management, LLC. All rights reserved.