On the Markets: Stay Skeptical

Our eyes these days are on the Fed’s balance sheet, and they’ll continue to be, as we march forward through this repo and coronavirus crisis. What we’re seeing is a slight easing back and now flattening on repos, but the Fed’s still buying Treasury bills. That all combines to a mild positive for stocks, but it hasn’t been enough to show the likely next big surge quite yet. Keep an eye on this space, however, and on next week’s Boom & Bust. We’ll be tracking the balance sheet every Friday after the updates come late on Thursdays.

Short-term, everything’s politics, politics, politics. The Democratic primary continues on, with Bernie Sanders now looking like the clear frontrunner and the most likely nominee to face down Trump. That’s … not good for the banks or stocks, and the latter could be in for a serious correction if it starts to look like Bernie could take the election in November. I’m not exactly sold on that – Trump remains awfully formidable – but there are swing states beyond Wisconsin, Pennsylvania, Ohio, and Michigan, and a few of those states that usually go to Republicans (like Florida!) might be up for grabs in ways they haven’t been in recent elections.

But as I said, Trump remains formidable, and my understanding is that he’s planning a round of tax cuts for the middle class sometime around September. I’d do it earlier if I was him, but either way, more cuts would be good news for the markets and the economy: incentives for everyday households to invest. Of course, they’re investing in a bubble, but not everybody understands that like we do.

My advice: Keep with the markets but be skeptical. There’s simply too much going on right now that can change the course of where things are going. This is the final straight-up phase. For traders and short-term investors, there’s good potential to buy on a likely near-term correction.

We’ll have more next week.

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Harry Dent

Bestselling author and founder of Dent Research, an affiliate of Charles Street Research. Dent developed a radical new approach to forecasting the economy; one that revolved around demographics and innovation cycles.