Will Politics Slay This Record Bull Market?

Last night, I got a rather frantic phone call from a trader friend of mine who was watching the S&P futures sell off hard. The reason for that selling was the then-just-released dual political headlines that were not at all good for President Trump.

I am referring here, of course, to the guilty verdicts in the trial of Mr. Trump’s former campaign manager, Paul Manafort, as well as the near-simultaneous headline that the president’s longtime personal lawyer, Michael Cohen, had pleaded guilty to eight felonies, including two counts that directly implicated the president in federal campaign finance crimes.  

Now, I am not an attorney, so I will leave the question of President Trump’s legal peril to other, more competent observers. Yet what I am an expert in is the financial markets, and the intersection of financial markets with politics.

My trader friend knows this about me, and that’s why he called in a panic as the news was breaking to ask me: “Will these political developments finally slay this bull market?”

It’s a great question, especially considering we have just hit a milestone in this bull market, as it now is officially the longest bull run for the S&P 500 ever. Since March 9, 2000, the benchmark domestic equity index is up some 323%. Of course, eventually, this bull market will end (they all do).

Chart courtesy of YCHARTS

So, could Tuesday’s dark day for the White House be the catalyst that trips up the bulls?

I answered my friend by telling him that indeed, politics can be a catalyst to end bull markets. And, if the current political situation morphs into something very toxic, it would likely cause a flight to safety among the professional money.

Yet what I also told my friend is that it’s important to distinguish the scary headlines from the legal and political realities of this situation.

You see, regarding the Manafort and Cohen headlines, while they will likely dominate the news for some time, these headlines are not, let me repeat, not, a material headwind on stocks at this time.

Now, there are several reasons why the headlines don’t rise to the level of a material headwind. First, regardless of what Mr. Cohen has said, actual proof of criminal activity needs to appear before this situation gets dire for the president. As another friend of mine told me this morning, “Right now, it’s a he-said, she-said situation.”

Second, the ultimate end to this situation is not legal, but rather, political. If things progress here in a way adverse to the Trump administration, then we are talking about going down the impeachment road. But keep in mind, impeachment is primarily a political process, and not a legal proceeding.

Even if Democrats were to win back control of the House and the Senate following the midterm elections, they almost certainly won’t get close to the two-thirds majority needed to actually remove the president from office.

Finally, there’s no critical bull-market legislation that this news can derail. Stated differently, the president has already gotten the biggest driver of equity markets passed into law and on the books, and that driver is tax reform.

Interestingly, the one political concern that I think could derail this bull market is the trade and tariff issue. Yet if the political situation heats up even more from here, it would likely only weaken Mr. Trump’s leverage on the trade and tariff issue.

So, ironically, the president’s legal and/or political problems may turn out to dampen the administration’s enthusiasm for a trade war, and it might even make a compromise on this issue with China and Europe more likely.

The bottom line here is that the political headlines over the past 24 hours have not yet had a material influence on the markets — and I don’t think the situation, as it stands right now, is a bearish gamechanger for what now is officially the longest-running bull in history.

Upcoming Appearance

I am scheduled to moderate a fiery debate between Mark Skousen and Mike Turner on “Buy and Hold vs. Market Timing,” Aug. 23-25, at the San Francisco MoneyShow. I also will be doing two presentations, one titled, “How to Invest Like a Renaissance Man” and one titled, “7 ETFs to ‘Trump’ the Market.” I hope to see you there!

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ETF Talk: A Momentum Play on the Technology Sector

The Invesco DWA Technology Momentum ETF (PTF) provides an alternate take on U.S. technology firms.

PTF is unique because it selects and weights stocks by price momentum with a goal of outperforming the broad market. More specifically, PTF tracks the Nasdaq U.S. Benchmark Index, which is composed of at least 30 common stocks of companies in the technology sector.

These stocks are selected based on a variety of investment merit criteria, including fundamental growth, stock valuation, investments and risk factors. Securities evaluated with the greatest capital appreciation potential are selected.

However, sometimes the fund’s focus on capturing pricing momentum can cause its holdings’ exposure to become skewed, with major sector bets and sizable allocations outside the traditional tech field.

A relatively high expense ratio of 0.60% and a somewhat weak daily trading volume have turned away some traders from PTF. However, experienced traders who pay attention to the fund’s spreads can still trade it effectively.

The growing U.S. economy and strong expansion in the technology sector have helped to fuel PTF. So far this year, the fund has returned an impressive 14.31%, handily beating the S&P 500’s year to date return of 7.24%. PTF’s one-year’s return is 22.66%.

Chart courtesy of Stockcharts.com

PTF’s share price rose from the $60 level to the $63-$64 level and neared its 52-week high following Apple’s strong second-quarter earnings report on July 31. On Aug. 16, PTF saw a small pullback after NVDA offered guidance that was weaker than anticipated in its quarterly report. PTF has held around the low $63 mark since then. Interested investors could consider using this pullback as a potential entry point.

PTF’s top holdings are Apple (AAPL), 7.46%; Amphenol (APH), 6.48%; NVIDIA (NVDA), 5.57%; Paycom Software (PAYC), 4.74%; and Square (SQ), 3.91%.

Investors interested in a momentum play in the technology sphere can look to Invesco DWA Technology Momentum ETF (PTF) as a potential candidate.

I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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Introducing the Way of the Renaissance Man

According to Dictionary.com, a “Renaissance Man” is 1) A cultured man of the Renaissance who was knowledgeable, educated, or proficient in a wide range of fields. Or, definition No. 2) A present-day man who has acquired profound knowledge or proficiency in more than one field.

It is definition No. 2 that I aspire to achieve as a man, and every day I try to learn something new, integrate a new concept, or do something that will challenge my skills and push me toward a better understanding of life. It is because of my affinity for such a worldview, and because I love sharing that worldview with others, that I have created a passion project that I am proud to introduce to you today.

This new project is a podcast and website I call WayoftheRenaissanceMan.com.

The Way the Renaissance Man podcast and website is all about ideas, personal empowerment and celebrating the rational life. The goal of this project is to help each other discover the tools needed to better focus our minds, integrate our thoughts with actions and live the lives we really want.

To assist us on our journey, I’ll be eliciting the help of all sorts of interesting individuals. These are Renaissance Men in their own right, men (and women) who have a great perspective on life, or who have achieved high levels of success in their respective fields.

In some episodes, I will introduce you to people who have an inspiring story of struggle and conquest that can renew your sense of mankind’s goodness. In other episodes, I will just have casual conversations with interesting and entertaining people who are fascinating, humorous and able to help us learn valuable life lessons.

In my first episode, I am proud to present you with my interview of a man who has spearheaded the low-tax movement in America for some three decades, Grover Norquist, president of Americans for Tax Reform (ATR).

Grover founded this powerful organization dedicated to helping us all keep more of our money in 1985, at the request of President Ronald Reagan. ATR works to limit the size and cost of government and opposes higher taxes at the federal, state and local levels. The low-tax advocacy group also supports tax reform that moves towards taxing consumed income one time, and at one rate.

Grover is also a “notorious” figure in Washington, especially if you are a politician who wants to spend taxpayer money (and don’t they all!). His “Taxpayer Protection Pledge,” which asks all candidates for federal and state office to commit themselves in writing to the American people to oppose all net tax increases, has helped keep the otherwise free-spending members of the House and Senate under at least some semblance of restraint.

In this discussion, we talk about the goal of ATR, and how he’s been able to hold politicians accountable at every level of government. Perhaps more importantly, we talk about accountability as being one of the bedrock principles of Grover’s work, and why accountability is a fundamental concept in the life of a Renaissance Man.

Interestingly, you’ll also learn all about Grover’s other pursuits, which are largely unrelated to his work, including his experiences, of all things, as a stand-up comedian. Plus, you’ll also get a glimpse into a typical day in the life of Grover Norquist.

In just a few of the future episodes of the Way of the Renaissance Man podcast, I’ll be sharing with you interviews with individuals such as:

• A West Point graduate who also is a precious metals dealer
• A former Marine Corps F-18 fighter pilot who also has presidential aspirations
• One of the top investment experts in the country who also is a real-life Samurai
• An Anarcho-Capitalist who also is a cryptocurrency expert
• An author and psychologist who also is an expert on the “virtue of happiness”
• A former FBI special agent who also is an author and counter-terrorism expert
• A fellow financial podcaster who also is one of the funniest guys I’ve ever met
• A guitar god and world-famous music educator who also happens to be my best friend
• A true Afghanistan war hero whose story will leave you inspired, in tears… and back in love with your fellow humans.

As you can see, in the months ahead I will be introducing you to a whole lot of interesting people who can help us look at life from a variety of different angles, and from a renewed and enlightened perspective. And when you think about it, isn’t that what we all should do if we want to be the best humans we can be?

I am extremely proud of what my outstanding team and I have started at the Way of the Renaissance Man, and I hope you come and join us on our journey.

To make sure you are on the email list for announcements on new articles, or on the next podcast, simply go to the website homepage. Or, you can go directly to the sign up page.

Together, we can help each other become true Renaissance Men.

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Everyone Here Will Someday Be Dust

Everything’s scattered, but nothing is lost

Anything good, well it has a high cost

Everyone here will someday be dust

So let’s go, into the know…

— Jim Woods, “Into the Know”

Today’s quote are lyrics to the chorus from a song I just finished writing titled, “Into the Know.” The song came about after an evening of birthday reflections on what really matters, and how all our lives can be chaotic and fraught with difficulty in our struggle to achieve values.

Yet what we must keep in mind is that this life is finite, and that means we owe it to ourselves and those around us to strive for as much knowledge and understanding as possible, and to always try to “go, into the know.” For those interested, I plan to record an upcoming live performance of this song, and I will provide a link to that video here in this publication when it becomes available.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.