Thursday, November 10, 2016

Another Relief Rally

“Happy Days Are Here Again” is a song copyrighted in 1929 by Milton Ager (music) and Jack Yellen (lyrics). I wonder if the lyricist is related to Fed Chair Janet Yellen? The song was featured in the 1930 film “Chasing Rainbows.” The lyrics are very upbeat: “Happy days are here again / The skies above are clear again / So let's sing a song of cheer again / Happy days are here again.”

The happy tune became the campaign song for Franklin Delano Roosevelt's successful 1932 presidential campaign. It was played at the Democratic National Convention that year, and went on to become the Democratic Party's unofficial theme song for many years. The song is also associated with the repeal of prohibition, which occurred shortly after FDR was elected and was greeted with signs saying “Happy days are beer again.”

Monday was a happy day, with the S&P 500 rising 2.2%, breaking the previous nine-day losing streak. The market continued to advance on Tuesday (Election Day) and again on Wednesday. The financial press said that Monday’s action reflected increasing odds that Hillary Clinton would be the next President. Wednesday’s action meant that the market was looking forward to Donald Trump in the White House. Or maybe investors are just relieved that the election is over.

This could all be the beginning of yet another relief rally, which has been the modus operandi of the current bull market. (See our S&P 500 Panic Attacks Since 2009.)

In any event, the latest relief rally also reflects lots of recent good economic news that hadn’t been discounted because of the political uncertainties hanging over the market as the elections approached.

The latest earnings data are mostly happy news. Once again, we are seeing a happy hook in Q3’s blended earnings of actual and estimated results for the S&P 500. It has increased by $1.28 per share over the past three weeks to $31.00 during the 11/3 week. There’s also a significant upward hook for the S&P 400, while the S&P 600 continues to flat-line near the lows for the quarter.

So now the Q3 earnings growth rate for the S&P 500, which was slightly negative at the start of the earnings season, is plus 3.3%. The growth rates for the S&P 400 and S&P 600 currently are 5.0% and 6.7%.

No comments: