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The Stock Market’s Wall of Worry Stands Tall

While French election results and U.S. earnings are bullish, concerns about economy and Trump linger.   

By John Kimelman 

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With the results of the first round of France’s presidential election on the books, it seems that one pillar of the U.S. stock market’s wall of worry is crumbling.

Though Marine Le Pen, a market-unfriendly right-wing candidate, made it to the second and final round of voting on May 7, so did Emmanuel Macron, the former investment banker and centrist candidate who stands for market-friendly virtues like globalization and an even more powerful European economic union.

And odds-makers including FiveThirtyEight’s Nate Silver, and the stock market itself, see Macron, who came in first in Sunday’s voting, as a solid favorite to defeat Le Pen in two weeks.

As Silver points out, Le Pen finds herself in a far deeper hole than Trump ever was on the eve of his upset victory over Hillary Clinton.

(Though Silver was among the many handicappers who thought Clinton would win the presidency, he at least did a better job than most in his profession in showing Trump’s last minute strength. He also did a better job of eating humble pie than most. )

Add to that the news about a strong U.S. earnings recovery based on a slew of fresh announcements and it’s a wonder what’s keeping the U.S. stock market from making an assault on the next big milestone, Dow 22,000. 
 
But if you’re a believer that worrisome news about markets provides the healthy resistance necessary for sober market gains, then you’ll be satisfied that the “wall of worry” remains strong in the form of concerns about the economy and the questionable pace of the Trump agenda.

Articles by two veteran financial writers, the New Yorker’s John Cassidy and the Washington Post’s Robert Samuelson, lay out these concerns.

The New Yorker’s Cassidy writes the pace of the economy isn’t living up to the president’s lofty predictions.

He writes that the Commerce Department will soon release its initial estimate of how the U.S. economy did in the first three months of 2017, a period in which Trump was President for all but nineteen and a half days.

“Far from showing a quantum leap in G.D.P. growth, the official figures are expected to show a slowdown,” Cassidy writes. “In January, when Trump took office, Wall Street economists were expecting first-quarter G.D.P. growth of about 2.3% on an annualized basis, a respectable if unspectacular rate that would have surpassed the 2.1% recorded in the final three months of last year. Since February, however, many economists have been downgrading their forecasts.
With retail sales softening and auto production falling, the widely followed Blue Chip consensus of forecasts projects that first-quarter growth will come in at under 1.5 per cent—and some experts believe even that number could be overestimated.”

Cassidy then goes on to describe the troubles that the Trump administration will likely have in pushing legislation through Congress that will help the economy.
 
For example, “the timetable for tax reform, which would likely have a bigger immediate effect on over-all economic growth, is also highly uncertain,” he writes.

In his latest column for the Washington Post, Samuelson also questions whether the economy will undermine current stock valuations.

But before anyone concludes whether these words are the rantings of sour-grape-eating anti-Trump writers, here are some comments about the economy from Larry Fink, the CEO of BlackRock, the world’s largest asset management firm.

“There are some warning signs that are getting darker,” said Fink, in an interview Wednesday on Bloomberg Television, referring to the economy.

Fink mentioned a pullback in car sales and a slowdown in merger and acquisition activity as indications that uncertainty is rising. The slowest economy among the G-7 nations is the U.S., he said.

“If we don’t have earnings validated in these higher P/Es we could adjust downward 5 or 10 percent from here,” Fink told Bloomberg. “If the administration does succeed on some of these items then the market will then reassert itself going higher.”

At the very least, he has articulated a wall of worry for markets to hopefully climb.

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