May Client Letter: Sunshine & Rain; Are Millennials The New Phase 4 Investor?
What follows is a section from the “Thoughts & Analysis” portion of my monthly letter to investors at T11 Capital. Sunshine and Rain The obstacles to the continuance of this bull market are not so much data driven as they are emotionally driven. Every bull market brings with it an abundance of worrying factors that drive investors to the sidelines, thinking that an avalanche of adverse circumstances will take away whatever profits an investor has accumulated during the bull run. Since the beginning of this secular bull market investors have been bothered by a confluence of data that lend credibility to the thought that a collapse was imminent. It is only recently that investors have evolved from that line of thinking into a more solid foundation for investment. That foundation has allowed the market to move forward, nearly unencumbered since the election. At the very same time, the confidence created by such a foundation has, for the first time, opened the doors to extreme volatility that isn't currently being reflected in the popular volatility gauges. The fundamental foundation for investment that currently exists is based on fiscal stimulus measures that are varied in method. They encompass everything from incentives toward domestic manufacturing to infrastructure spending, with foreign allies recently stepping up to the plate to assist in the financing of such projects. Of course, tax cuts are being rightly seen as the master key towards unlocking a treasure chest of corporate profits. The current White House has very obviously been the trigger for the tectonic plates beneath the markets shifting substantially since the election. Therefore, it would make sense that when the current administration is threatened, the markets would feel threatened, as well. It would also make sense to consider that when the current administration is encumbered by investigations into their conduct, regardless of the merits of the investigation itself, that markets would accurately surmise that a delay in the fiscal stimulus agenda is a very real possibility. In fact, Goldman Sachs came out recently with a completely modified forecast for what lies ahead for tax legislation, saying the following: The probability that tax legislation will be enacted by 2018 has fallen further, in our view, as a result of recent events. The last few weeks have taken a toll on President Trump’s approval rating as well as support for Republicans in Congress.... Over the last week, the President’s approval rating has averaged around 40%, and Democrats have led generic ballot polls over the last week by an average of 11 points. It is also not clear how much support there will be for a simple tax cut....