E Market Briefing For Monday, Dec. 11

Injecting a ‘poison pill’, in our view, determines the very short-term market prospects for investors. That relates to the FIFO provision in-or-out of the final version of the tax bill that keeps the market hanging for the moment. It is said that comments by Senator Susan Collins make that dubious; but it’s unclear what she may have said in that regard. Hence it’s all still pending. 

With the macro situation unchanged for the market; there are a few matters we can summarize, without exploring risk-versus-opportunity in 2018. That so many evaluate ‘when’ the market will be overvalued suggests that there is a contradiction with the perception that the market is simply ‘complacent’. 

To me this market is elevated by several factors, including monetary policy of course, which should have snugged-up years ago from ’emergency’ low rates. If there’s supposedly no emergency; then why did Bernanke persist, and Yellen show no zest to firm or unwind the balance sheet until then-new Vice Chairman Stan Fischer finally persuaded her of risks in not doing so. 

The Fed can be thankful (though few will ever acknowledge that) that Trump was elected, because the growth picture and pressures against business at least modulated to the extent that the Fed can rationalize ‘wiggle room’ to be able to move rates higher and drain the balance sheet. This is the biggest of conventional issues confronting the macro perspective, going forward. 

Bottom line

The FIFO factor impacts the next couple weeks; and then we’ll see (if Congress votes a tax bill without FIFO requirements imposed) hints of how the market will do early next year simply by watching Dec. 28 and 29; as sales those days will settle in tax-year 2018.  

The so-called ‘complacency’ out there really defines the nature of ‘passive investing’ and peer-matching Index competition. Most managers wax bullish when asked in public (they do have clients and investors after all); but with a cocktail or two in private, often express serious fears about what may come.