Stocks closed narrowly higher in a quiet trading session. There was very little in the way of new news to move the market. The big remaining economic release of consequence will come out this morning, the November employment report. Wednesday’s prediction from ADP (which pays out about 1 or every 6 private sector paychecks) was for a lower number than consensus estimates. However, yesterday’s weekly jobless claims number of just over 200,000 suggests that layoffs just aren’t happening. In other words, the two releases offer a contradictory conclusion. Hopefully, today’s number will resolve that.
In other news, a big OPEC meeting is expected to conclude with pledges by member states to cut production by as much as 500,000 barrels per day. Oil prices have been fairly low due to worldwide oversupply. In the old days, OPEC had fairly good control of the market. But as Russia, the U.S. and other non-OPEC states built proven reserves, OPEC’s power has waned. Oil is like virtually all other commodities. It is in oversupply. Obviously, production cutbacks could help to stabilize or increase prices. But if prices rise, so will production by non-OPEC states. In addition, OPEC members notoriously cheat relative to their agreed upon production quotas. The obvious conclusion is that short of Saudi Arabia cutting production by itself in a significant way, OPEC can no longer control market forces. Oil price did rise a few percentage points this week on the expectation of planned cutbacks but the reaction was far more muted than it has been in the past because investors now realize that market forces, not OPEC, have the ultimate control on price.
Most of the other political news has very little market impact. Democrats seem intent on moving toward impeachment. It is becoming much more a political than a legal process and all indications are that, when all is said and done, President Trump won’t be convicted by the Senate without startling new data, and the American people will make the ultimate decision next November. By next fall, the debate will center on health care, tax policy, and, of course, Trump himself. It is far too early to speculate on any Trump alternatives because, as we have seen in the last four Presidential elections, polls and public opinion change rapidly. Markets are not very good at discounting the unknown. Perhaps when we all have a better idea who the Democratic nominee might be and polls suggest a probable winner in the Presidential race, then markets might move one way or the other. But making political bets today is like betting on the weather a year ahead.
Thus, we are in what I have often referred to as one of those vacuum periods where a dearth of economic and corporate news can leave markets rather trendless. That could change as well get closer to the end of the year but for now, perhaps it is a good time to do some year end adjusting. Take losses to offset gains. Remember that if you sell a security within 30 days of purchase, you cannot realize a loss. It you have a loss in a stock that you like, you can sell it now and buy it back in 31 days. If you want to stay fully invested, you can either buy an index fund with the sale proceeds for 31 days or you can buy a near equivalent stock. For instance, you might sell Exxon# and buy Chevron# if you think oil stocks are about to go up.
You can also ask yourself, “Why did I buy this stock?” If you bought it because you thought you were buying a high growth market leader that, upon reflection, isn’t growing as fast as you expected or is losing market share, get rid of it and buy something else. Don’t stubbornly hold on to damaged goods hoping that it will get better.
Similarly, valuation matters. If you bought a stock that has gone up in price much faster than its earnings, now might be a good time to take some profits. You don’t have to sell an entire position but some trimming might be in order.
Also ask yourself if your portfolio has balance. Are one or two positions so large that a sudden decline would severely damage your overall portfolio? Are you way overweight tech because it has performed so well for several years? Balance is important.
With that said, have a nice weekend.
Today, Giannis Antetokounmpo turns 25.
James M. Meyer, CFA 610-260-2220