21 December 2017: New fuel?

Now that the tax bill is on its way to be signed by US President Donald Trump, which circumstances can keep this bull market alive? What are the new sources of fuel that can keep this rally up and running? Are there any? Let’s check out some options.
More government measures that will stimulate economic growth? Although Donald Trump has played his trump card by means of the tax bill, there is another move he could make: investments in infrastructure. Those investments are another promise he made during the presidential campaign. It remains to be seen if there is still enough financial margin to turn such proposals into reality. The tax bill is already responsible for a substantial rise of the US government debt in the long run. An even higher level of debt might harm the trust of investors.
Decisions made by the Federal Reserve? The Fed is on track to implement a number of measures (the rise of interest rates, quantitative tightening rather than easing) that are not very supportive to economic growth. However, these measures need to be taken to create some leeway for the Fed in times of setbacks. They will not frighten investors, as they have been announced more than once by Janet Yellen, but they will not fuel the stock markets either.
Organic growth of the US economy? There might be some room left here, but the US economy appears to be approaching its optimal capacity. A further growth might lead to overheating, with all of its negative consequences to the economy and, consequently, stock prices.
All in all, it looks like optimism among investors will be the remaining catalyst that might be able to extend the stock market rally of 2017. And those are not the strongest shoulders to carry the weight of bloated stock prices…

white-chapel-logo-smallUS stock indices ended slightly lower after both the House and the Senate passed tax legislation. The Dow lost 0.11%, the S&P 500 closed 0.08% lower and the NASDAQ was nearly flat, losing 0.04%. Volatility eased, with the VIX returning to single-digit territory at 9.72 points (-3%). UVXY ETFs closed slightly lower: -0.7%. XIV ETNs closed flat: -0.01%.
Danny Daredevil is struggling hard to remain in positive territory. So far, he is succeeding. His RSS closed at 1% yesterday. Adventurous Anny is holding cash. Her RSS remained at 23%. Solid Suzy and Lazy Larry took a very small step back. Their RSS remained just above 102%, however.
None of our models gave a trading signal at the end of yesterday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

0.99%

-74.95%

-27.51%

1%

Adventurous Anny Cash 6 March 2017

22.91%

22.91%

13.28%

30%

Solid Suzy XIV 6 March 2017

102.16%

102.16%

38.20%

143%

Lazy Larry
XIV 6 March 2017XIV

102.16%

102.16%

38.20%

143%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

RS_v05-small

Spurious correlations (I)

Part one in our new series about (allegedly) spurious correlations.
Statistics with a wink.