Crushed economic hopes continue to be the counter-intuitive prop for this equity market; and that's nothing to be excited about. It stretches the 'rubber-band' of a run while there is little elasticity to anything going on with corporate profitability for now. (I've put some effort into this weekend's report; I hope it conveys a broad spectrum of the status, insecurities, technicals; and the prevailing overall global uncertainty.)  

In fact; earnings look mediocre for the quarter nearly ended; and soft ahead too. To view that enthusiastically requires not only believing the 'Greater Fool Theory' takes prices ever-high; but that the Fed, which has somewhat lost control, never regains it (something we are not so confident in as some of the Bulls; who are rationalizing).

I know they 'say' the Bears don't get it. Yes some do; and it's been profitable trading, although absolutely in an angst-filled environment with lots of 'tension on the tape'. It's a market accident waiting to happen;as Friday's behavior showed once again. It is also reflecting the 'thin' nature of this market, where a handful of stocks (typically the 'most-shorted' as we showed in a chart last time) are able to snap-back quickly, in save-the-day swings that really show the market's skittishness; not its stability.

Aside from politics and 'Bad News Bulls' thinking things getting worse again is favorable for stocks (beyond the short-term machinations), I'd look at troubling areas. Apple (AAPL) shook-out, as reports of poorer than carrier-implied iPhone 7 sales hit (but we know more about that). I already indicated they'd likely 'flood the market' with inventory once we got past their Q3 drop-dead sales date and that's this weekend. 

Yes, you'll hear that 'thousands' were stuck on a container ship (the Korean firm that folded); or that UPS flights had weather-related delays (both likely valid); but I'd say just watch. In a few days you'll see more rapid deliveries (the first Jet Black iPhone 7 Plus orders too) not just because secondary international markets are opening at retail. It's because all sales can only be posted in the quarter they were shipped or sold (charged to a credit card or carrier); and by deferring the bulk of sales to Q4 as it's too late to meaningfully impact Q3. The year's final quarter has a better chance to look like a blowout if they delay deliveries until after Sept. 24 (the end-date for their fiscal quarter); so that's right now. I also expect new (more than updated with refreshed design elements) MacBook Pro's out during October.  

Then there's  Facebook (FB) where you are hearing about fabricated video views for their advertisers. Not surprised. (And this should be scandalous.) I'm not surprised since a few years ago, with what little promotion we do (mostly just word-of mouth by our members hopefully), we did a brief campaign to share our views on Facebook. We targeted adults with interests in economics and stock markets; US, UK and Europe. 

We got numerous 'clicks' from Asia, even thought the brief effort excluded the areas from Facebook demographics. My point: it appeared to be 'stuffing', to give shared features false impressions of market reach (General Motors specifically stopped using Facebook at the time, accusing them of just that, which I noted). In all candor our limited membership depends on you guys and girls sharing our view from time to time; but my point here is that Facebook is again pushing the limits of providing internal auditing and representations of what kind of results they provide. Deceptive or fraud I don't know; but why doesn't anybody ever challenge them, or Google, for an independent outside source to verify not only response but data integrity?  

We assess this market as overlooking distortions; emphasizing the disappointing or overstaying Federal Reserve monetary policy;  dismissing the hints provided by BoJ reviews of their own stance; and ignoring the rapidly easing EU growth just reported and contrary to what had been a steady if not robust improvement. It may be just an outlier, but is what's been reported most recently. It cannot be addressed solely by a perpetuation of overzealous stimulus; it seems even the ECB is considering that.  

In summary:

This week the Fed (and Friday the New York Fed) reduced estimates of long term U.S. gross domestic product growth from 2.0 per cent to 1.8 per cent. Globally, the average economist estimate for 2017 global growth had been cut from 3.5 per cent to 3.1 per cent in recent months; now more likely. These developments strongly suggest that primary cyclical market sectors, like consumer discretionary, industrials, and many commodities, will underperform for the foreseeable future. So that encouraged bond bulls and equity bulls ('there is no alternative' stance money managers); while some long-standing bears capitulated. They also changed the risk profile for popular income-generating equity sectors, and not in a favorable way.

With accelerating economic growth seemingly abandoned (we denied it recovered, and sadly were correct); the real risk is that income-generating sectors essentially 'rot from the bottom', with revenues, profits and net asset values shrinking to a point where dividends (and even passive income payments) to investors are cut. An idea that this is constructive for the U.S., Canada, or Europe is ludicrous. 

On Friday the German negotiator spoke of trade talks with the US going nowhere. I know the market would rather chatter about Twitter; but while we're in favor of solid global trade (not lopsided deals like those made with much of Asia for years), it's troubling to see this cooling-down of trade prospects with Europe concurrently with a growing belief that TPP (Trans-Pacific Partnership) is going nowhere. What this may mean, ironically, is a set-up not only for a market plunge, but an acknowledgement that the USA has been in Recession; something we've said would roughly track from July. 

I am not in favor of isolationism; but too much of a good thing is often not desirable. It can be the case for monetary policy; but also 'institutionalized' trade policies that of course were noble and helpful to others decades ago; became harmful for years now to our people. An America without a vibrant (upwardly-mobile) middle class, is not an exceptional America; and it drains the dreams that are the attraction to be here; and which have made this country (besides basic freedoms) quite a magnet. Equality of opportunity 'in' America is mitigated by globalists confusing it with other issues; 'as if' it were something that could be resolved without trade policy change.  

If that's the case, what Wall Street will present a new Administration (either of them) is a distorted mess; a sluggish economy; and a need for fiscal action beyond what's been an overreach by the Federal Reserve. Given the market pattern, a first year of a new Presidency could be a rough one, for the economy and markets. 

It's a time in fact for lots of new programs and reforms to be put-forth so things can get addressed, and then (whoever's) Administration can claim rebuilding progress in the ensuing couple years. It's part of the 'bear market' transition to a new bullish or virtuous cycle, or at least that will be the hope some months from now. Yes, this is going to clash with demographic trends that make it tough; but that's part of why the pressure is on to shake things up and I suspect most Americans realize this. 

We're short the December S&P over the weekend from 2164 (in-whole or in-part). Most important now (may be) for investors not to try to cull out so-called 'values' in a market where pundits would rather 'hawk' stocks (or ponder who buys Twitter), than face the music that can disrupt the curtain calls this market keeps performing. 

Conclusion: 

The cowardly behavior of an overreaching Fed has created essentially towers of optimistic babble about what constitutes intelligent investing, has followed the ECB's plan of denying any return without higher risk (for retirees) and again has taken us to the 'edge of risk', without the safety cushion many pretend now exists.

(Main video was lengthier than expected; while 2nd video discusses Friday.)
 

Weekend (final) MarketCast

Pre-2 o'clock (intraday) MarketCast