Thursday’s Closing Look
Stocks were relatively quiet on Thursday after the new Treasury Secretary, Steve Mnuchin, said a “very significant” tax reform will be passed by August. Mnuchin said, “We’ve been working closely with the leadership in the House and the Senate and we’re looking at a combined plan.” Stocks have soared since the election, thanks, in part, to Trump’s pro-business policies, deregulation, and a big tax cut in the near future.
Gary’s Thoughts: We can now complain a little. First off, the market has had a good run. Secondly, our sentiment figures show very high optimism. Third, we finally saw what we would call a “break in the action” today as the underbelly of the market was much worse than the Dow. In fact, there is a decent chance that the commodity complex put in a near-term decent high as well as a few other areas. This in itself does not mean the end of the world…but markets are stretched, extended ad overbought to the upside where pullbacks are due. Today’s action could be a starting point. We will post radio show to you in the morning.
In the most recent ML B of A Fund manager survey which measures 210 Fund managers with $632 billion under management they have a very bullish 4.9% of assets in cash. This survey which goes back to 1985 has historically been a great contrary indicator. The signal is bullish when cash at 4.9% or greater and one year later (at least since 1985) the S and P 500 has always been higher. Interestingly, when cash is at 3.0% or less we have always been lower one year later with only one exception.