The post-election rally in stocks appears to be over. The S&P has kept some of the gains it made, but has been flat since Dec. 9. Could the flat spell become a downtrend? Yes. More and more analysts think sales will accelerate and stocks will dip substantially in January, when people will start taking gains in hopes of lower 2017 tax rates (and the fact that gains won’t get taxed at all until April 2018). They say Trump’s economic policy initiatives may not be nearly as beneficial to the economy as quickly as initially hoped. Finally, Trump will take office under an enormous cloud of suspicion about his ties to Russia and the conflicts of interest posed by his business holdings. Anything could happen. The markets hate uncertainty but made a gigantic exception for the past several weeks. Don’t be surprised if the wake-up call comes very soon. Fortune Magazine (Dec 15, 2016) was notably downbeat in its recent cover story on the 2017 investment outlook: “the biggest fallacy is highly inflated expectations for earnings.” It says S&P 500 profits peaked in 2014 and are down 15% since. Fortune also cited the fact that the price to earnings ratio for the index as whole is at very high level historically. Bottom line: Stocks are now very high-priced, suggesting caution in buying at present prices in most cases.
By Andre F. Shshaty