Markets Rally and Byron Publishes his 10 Top Surprises for 2017

Mkts welcome the new year with a rally!  Dow closes up 120 pts, the S&P rallied 19 pts, Nasdaq adds 45 and the Russell was up 8.  All the chatter now turns to the beginning of 4th qtr earnings season - which starts in earnest on the 13th -with JPM kicking it off, the Inauguration of Donald Trump and the next FED meeting that happens at month end and resulting rate policy.  (Some people expect the FED to raise rates once again in January - I say - NO WAY.....I mean it took them 12 months between the first hike in December 2015 to raise rates a second time in December 2016....Now these strategists think that the FED is going to raise rates again 30 days later?  Stop already - please).    

Now while everyone expects to see real change in policies with a Trump administration - the mkt will need to see some real fundamental improvement in earnings if this rally is really to continue....look - as Larry Kudlow says - "Earnings are the mother's milk of stocks and the lifeblood of the economy"  and the 4th qtr earnings are expected to grow to at 3.2% y/y....this would be on top of the 3.1% growth rate in the 3rd qtr - ending the 5 qtr streak of negative growth - but the real meat and potatoes are the coming expectations for 2017! 

Earnings are expected to grow at 11% in the 1st qtr, 11% in the 2nd qtr, 9% in the 3rd qtr and 14% in the 4th qtr! And that my friends is where the rubber hits the road.....If earnings grow at that rate then the sun will surely shine.... we have plenty of time to discuss this.... But in the end - this EXPECTATION is what is now driving stock prices.....Look - yes - new economic policies will help - but we have now priced those in - stock prices may be overvalued at the moment - BUT if earnings can grow at this exponential rate in 2017 - then maybe stocks are not as expensive as they appear...........we know that Trump will not get 100% of what he wants - but the mkt does expect that he gets 50 - 60% of what he campaigned on...and if that is the case then it's all good....so now the focus returns to fundamentals and those fundamentals are earnings. 

Next up the FED.....They meet at month end to discuss future policy moves....I can't see another increase at all......do you?  I mean inflation is still running at sub 2% and UNDEREMPLOYMENT is still plus 9% (forget unemployment - it's not a real number at all).   Any further hikes will only fuel a dollar rally even more - which may be good for Americans, but it will create difficulties for the EU, and Asian economies....it will also pressure the big US multinationals as earnings earned abroad will translate into lower dollars putting pressure on qtrly earnings...BUT this is also almost comical - because if you are a long term investor - then you know this - analysts and strategists know this - and earnings expectations are adjusted for this event - so stock prices should reflect this pressure - now if the FED raises rates and forces the dollar higher then that calculation is constantly changing so stay tuned....

Remember - big US multinationals are just that - BIG US MULTINATIONALS - this is NOT their first rodeo - they get it and a stronger dollar is not putting JNJ, KO, CAT, GE etc.. out of business at all....so don't get drawn into that argument - those are great companies that pay healthy dividends - lower prices create an opportunity for strong US names that are the core of a long term diversified portfolio. 

Next up - Byron Wein's 10 surprises for 2017 -
Byron Wein - the 83 yr old Vice President of Multi Asset Investing at Blackstone Group LP - has come out with his annual '10 Surprises for 2017' list.....and if his 10 Surprises for 2016' is any indication of his ability to assess outcomes - I would caution you to take this with a very large grain of salt  - A quick recap of his 2016 predictions -

1. Hillary Clinton as the winner and voter turnout would be 'below expectations' - How'd that work out?

2. US stocks go Negative for the year - Not so much!

3. A single rate hike in 2016 - Bingo.

4. Weak US economy forces overseas investors to shun US stocks - So missed that mark.

5. China barely avoids a hard landing - wrong

6. Refugee crisis proves divisive for the EU - Was that really insightful?  It has proved divisive for the world. 

7. Oil languishes in the $30's - Missed the mark there!

8. High end residential real estate in NY and London has a sharp downtown - mixed - softened but did not have a sharp downturn...2017 is Different!

9. Soft US economy keeps the 10 yr below 2.5% - Bingo.

10.  Global GDP falls below 2% - wrong.

His  2017 Predictions include:

1. 10 yr yields to hit 4% - Could happen...

2. GDP hits 3% - we can only hope it happens!

3. Angela Merkel gets thrown out - No way.....Who is her competition?

4. S&P to surge by 12%

5. Corp Profits to top $130/sh

6. Inflation moves towards 3%

7.  WTI trades below $60 - considering it is trading at $52 I guess he nailed it!

8. Trump  moves away from his extreme positions.

9. The EU begins the process of disintegration.  That's a stretch

10.  The Euro is abandoned in favor of national currencies. Another stretch.

Eco data today includes  Mortgage Apps of +0.1%, and the FOMC mins from Dec......Neither one a mkt mover at all.    

Overnight Asian mkts all ended the day higher on the back of the better than expected global manufacturing data released yesterday and overnight.  In Japan the PMI rose to 52.4 - beating estimates of 51.9.  Suggesting more signs of recovery.  The Yen weakens as the dollar rallies sending Japanese EXPORTERS higher.... Japan +2.5%, Hong Kong -0.07%, China + 0.78% and ASX + 0.06%.   
 
In Europe - mkt there are a bit softer despite higher inflation figures....- but look - all of these mkts surged into the end of year - so consolidation is ok.....NONE of these mkts is falling out of bed at all.....In London the BoE reported that consumer credit grew at the fastest pace since 2005!  (And that speaks to the health of the consumer)   FTSE +0.03%, CAC 40 -0.10%, DAX -0.31%, EUROSTOXX  -0.05%, SPAIN -0.11% and ITALY -0.04%. 
 
US S&P  futures are up 3 pts - and the media is once again focusing on Dow 20K..... Oil is up 32 cts at $52.66 and Gold is up $3 at $1165/oz.   Now gold bounced off of the $1122 range nicely and is attempting to test its down trending 50 dma at $1204/oz -   
 

Take Good Care
KP

Roasted Cauliflower Soup 

On this cold winter day here in the northeast - try the Roasted Cauliflower Soup....

For this you need:
1 Large Head of Cauliflower, Olive Oil, S&P, Minced Garlic, Chopped Onion, Chicken Broth, lite Cream.
 
And to top it off:
Chopped Pancetta, plain croutons, Fresh Parsley
 
Preheat oven to 425 degrees.
 
Toss the cauliflower with olive oil and season with s&p.
Spread the cauliflower onto a baking sheet, and roast for 30 to 35 minutes, stirring occasionally, until lightly golden brown and tender.
 
While the cauliflower is cooking, put a splash of olive oil in a pot and cook the pancetta over medium heat until lightly browned, about 4 minutes.
Add the croutons stirring to mix with the oil and pancetta. Season with s&p, toss with the parsley  remove and set aside.
 
Now in the same pan sauté the onions and garlic over medium low heat until soft, about 5 minutes.  Add the chicken broth to the onions and bring to a boil.
 
Add the roasted cauliflower to the pan, and reduce to a simmer for 20 minutes.
Taste, and adjust salt and pepper as needed.
 
Add the lite cream to the pot and then puree (in batches) in a blender or food processor until smooth and creamy.
Return the soup to the pot and keep warm.
 
When serving - ladle soup into bowls and top with a couple of tablespoons of the garnish.
 
Buon Appetito.