Big caps are doing well. Since the stock market is a leading indicator, the stock market is signaling a big uptick in earnings and earnings growth. Since the US economy is 70+ consumption it appears to me that the stock market is expecting a significant uptick in consumer spending. I saw a headline the other day that indicated that there was consumer confidence was at a 15 year high. So why would consumer confidence be surging?

When the stock market goes up people feel richer and more secure. They spend more and consumer confidence goes up. More consumers are older people now. Old people own stocks.

The spending stimulates the economy so stocks go up even more. This was all set in motion when the FED went to zero interest rate policy. It just took a long time to get momentum.

They printed a bunch of cash in the Qe's. People invest that cash, stock market goes up. People know you can't just sit on cash so hell even something that says will give you 3% people will put their money at.

interesting topic.

stock market isn't that tight a leading indicator of the economy.

stock market has gone up tons in last 6 or 7 years with pretty disappointing economic growth. lower interest rates is part of the reason.

the interesting thing to my mind is that everyone - and i mean everyone who was unbiased - thought the market would get hit badly if trump won. in fact, futures markets did get whacked by his victory but then the stock market the next day didn't go down - my recollection, could be off.

not sure why people - including me - thought it would go down and then it didn't

i guess in hindsight some of the things trump advocates - like lower tax rates - could be good for company profits and wealthy investors but not necessarily good for the economy longer term.

interesting times, to say the least

Trump policies are good for short term large cap business gains by slashing their tax and regulatory costs. Probably that simple.

So were they really unbiased? The media, elites, and whoever we get our information from clearly peddled us some false outcomes if Trump would win. I also read the zerohedge blog to get the other perspective sides of things

I think clearly lower tax rates will be good for corporations (more profit) which should be reflected in stock prices eventually. More capital would also flow to the USA. I don't see how that is bad for the economy. I think capital will always be deployed more efficiently in private hands than in government hands.

I didn't buy the logic that Trump would crash the markets when his main policy was lowering the corporate tax rate and fixing up some old trade deals to his advantage using the leverage the United States has. Biggest consumer of products, biggest economy, biggest military, basically has all the leverage.

You could make the case of the markets going lower just out of irrational behavior if Trump won for a bit. In the small cap stock I was interested in, the irrational panic selling was happening the days before the election. I ended up emptying the clip buying very heavy, even though I wanted to wait till after the elections.

The biggest of all is Trump's promise to slash regulation. Regulation - much of it useless/nonsense - chokes the life out of economies and sends jobs and investment money overseas. This is well settled question; there is substantial scholarship on the negative economic effects of excess regulation (as much as 4%/year in GDP growth lost).

So that's a big but not often talked about part of the rally.

True, yes can't forget his policy of slashing regulations.

I hear this a lot but never any more detail. What are the regulations that hurt businesses so much? Environmental? Sec? What else?

Perception >>>>> details

Elaborate on this please.

Here is my take. Yes the stock market has gone up a lot in the last 6 or 7 years but it also had a huge decline previous to that hitting a bottom in March of 2009. Of course low interest rates have been a big contributing factor to the rise in the stock market since then. Although the recovery has been weak business costs have been under control and consumption has been ok thus profits have been decent.

However, now we now have clear signaling from the Fed that monetary policy is tightening. Usually not a good thing for stocks but the headwinds this presents are arguably moderate. As far as what is good for the economy, real economic growth (real meaning growth minus inflation) is in my view what is best. It is been demonstrated over and over post WWII that government revenue rises and falls in pretty much lock step with the economy. What is the catalyst for economic growth? The business investment component of GDP. Clearly TRUMP has signaled that he favors fiscal policy that is much more favorable to economic growth through business investment. Market valuations in terms of trailing PEs seem high to me but that isn't what counts. I think the markets are clearly anticipating higher earnings due to much higher real GDP growth. ADP numbers looked really good today.

This thread is basically my last bit of unfinished "business" on 2+2 so I may not respond but I will be lurking.

• overall economy and job market doing well or decent for most people
• stock market been doing gangbusters for years
• low interest rates
• republican control of all 3 houses
• Pro-business/rich people billionaire elected in as president vowing radical pro-America change
• WH promising to massively cut regulations, massive infrastructure spending, massive tax cuts for wealthy, repatriation holidays for companies, renegotiate trade deals to be favorable to US companies, put loyalists in positions of power for departments to be slashed/downsized. Massive increases in defense spending.

I know a lot of people buying second and third homes right now or upgrading to fancier cars/houses/boats etc. As long as foreign policy doesn't go ape ****, times are good till the coming financial crash or race war in the next 1-5 years. #YOLO

2015-2016 put the bull market of the preceding years in pause due to the fears surrounding the first rate hike, the energy market crashing and its potential impact massive high yield defaults, Brexit and the US election. With all that out of the way, the markets have nothing foreseeable to be nervous about. That being said, market is way too rich to be buying up here imo.

I can't speak to big business, but there are certain things about how the tax code handles inventory based businesses that make it extremely difficult to grow/scale without being in a major cash crunch. For instance, I would have already hired someone this year in the USA in my business if it wasn't for inventory on hand being treated the same as cash in my bank account (asset vs a liability), but I can't because I need the money to fund future manufacturing and pay taxes. I cannot pay uncle sam in physical product.

Also, there is a lot of red tape around devices that can be construed in any way as "medical." The FDA is a huge money grab with little actual oversight until something goes wrong. You can register and pay them their 4k per year and they begin to leave you alone, at least as far as customs/border control is concerned. But then if you want to try to get something actually approved or licensed in the proper way, it costs 5 or 6 figures and 2-3 years. Keep in mind, I'm not talking about ingestible drugs here, I'm talking about very simple household OTC products. If you want to actually take insurance reimbursements for these types of products, that is a whole other can of worms that you need lawyers for and full time staff to handle the paperwork, and oh by the way, each state has their own set of regulations surrounding the distribution of those products.

These were probably well intentioned laws, but how it works in reality is just FUBAR. People on the left and the right both talk about wanting to help small business, but it feels like they've never actually talked to anyone who has run a small business.

my 2 cents.

If most major headwinds are past us, why can't the fed begin to raise rates? This is something that I just don't understand.

From mid '04 to mid '06 they raised rates by 25 basis points 17 times. From 1% to 5.25%.

How is it they can't begin to "normalize" interest rates given where the economy is right now?

What is the holdup? Seems like we should be raising 4-5x a year for the next 2-3 years.

What else needs to happen before we get on that 04-06 trajectory?

We just raised them in December, and according to Fed Funds futures, there is a ~90% chance Yellen raises another 25bps on Wednesday. Futures predict 3 total hikes is the most likely outcome by the end of the year:

http://www.cmegroup.com/trading/inte...n-to-fomc.html

It seems like most of the new rhetoric from fed officials is that it is time to raise, inflation has hit targets (2.3 when target is 2), the economy has recovered and we need to begin to normalize, but I wonder if they will have the balls to do that given the political situation and how polarized everything is.

If there is a pricking of the bubble then they will look more than a little political, and POTUS obviously ain't gonna waste no time insinuating that is the case.

Also this is Yellen's last year and couldn't the president just put someone with more accommodative monetary policy in there if he felt it would help his fiscal policy (infrastructure, tax cuts)

While historically the Fed chairman has held their position for over 4 years since Volker, I think it's at least even odds Yellen gets replaced by the end of 2018 given that Trump has repeatedly criticized Yellen for being political and accommodating Obama, and given Trump's conservative and business-oriented cabinet appointees.

It's hard to raise rates when BOJ and ECB at negative interest rates and doing QE. Switzerland at -.75 (buying Huge amounts of US stocks on the balance sheet as well). As long as that is going on, I don't think the Fed can really normalize rates.

Define normal.

Normal would be at least 3-5%+.

How much could they raise rates if ECB and BOJ don't change anything? That I don't know but even 2% seems like a huge spread to me. Wouldn't that cause to much risk in the global financial system to allow the spread to get to big in the biggest markets in the world.

Why? Because that what it was for a few years in the 90s? What makes that "normal"?

Investors usually want a return on their money they put to risk. That's what I consider normal. Go back hundreds of years of financial markets and interest rates have never been this low for so long.

I don't want to try to figure out what normal is but to have a better understanding at what point could the Fed really hike rates up to if ECB and BOJ are at negative rates and doing massive amounts of QE?

Hundreds of years? We live in a world of evolving of economic paradigm, how can we compare today to what happened hundreds of years ago? We can probably compare ourselves today to the late 80s, and the only thing "normal" is that interest rates have been declining ever since then.

Of course investors want a return, but stating x% is normal does not follow.

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The debt ceiling issue is next week and isn't even being talked about. Is it just going to be irrelevant this time around?