Market Briefing For Tuesday, March 28

Battle stations were called for several weeks prior to the 'shot across the bow' of an overzealous extended (valuation basis primarily) stock market, in recent weeks. We even pointed-out how 'high-net-worth' individuals were in fact 'on-balance' sellers, not buyers, with algo-driven institutions primarily in the monkey-see / monkey-do peer matching/following mode for months.
 

This matters, as individuals using common sense realized that so much was based on 'hopium' for 'promises made' becoming 'promises delivered'. So of course as the Healthcare vote was defeated primarily because it wasn't so much a health plan, but rather a tax bill to help facilitate forthcoming 'reform' proposals, many Congressmen found strong opposition from constituents. I do believe the 'push for passage' was more political than based on merits of the Bill, which many of us did not like from the start. (Obamacare also really is defective; but what was brought forth wasn't sufficiently thought-through, and people knew it.)

Basically I don't believe the Administration hasn't delivered 'as planned', but they sure have with respect to 'regulation reduction' and the pushing for jobs increases in so many ways. Now we may well get 'tax reform'; but it won't be as heavy as promised (unless they bust the deficit), nor so simple as the Treasury Sec'y. suggests. Rather the reason they wanted Healthcare first, was primarily because it was more of a 'tax' bill than a health plan that was viable for our citizens. As the Administration matures (or now that it paid its possible debt to Speaker Ryan by pushing his plan), perhaps we should see more effective health proposals able to gain traction, but later on.

In-sum: Clearly there was too much pressure for quick action (just 17 days of deliberations); stock prices emphasized too much optimism for draconian cuts; and even insider equity selling supported that perspective I suspect. Sentiment became extremely bullish 'after' the majority of the rally.

To define a bit what I speak of when I refer to money managers versus retail investor, what I've pointed-out is that active managers tend to become 'less exposed' to the market at bottoms (perhaps it's redemption pressure, versus analytical panic) and 'fully invested' into the highs (again money flowing-in, plus index-matching peer action, rather than being heroic); which puts them in an over-exposed position preceding corrections. Managers are generally judged against market performance benchmarks, creating anxiety which can lead to rational (but wrong-headed) investment decisions as they attempt to maintain their relative performance by chasing an already extended market; in this case one dependent on political results, not just business growth.

Technically we looked at the extended status for the last couple months at the same time we expected rallies in the wake of the Congressional speech and on a (predicted likely) Fed rate hike. 'They say' we're experiencing what is a multi-decade high extreme of optimism, which I have argued originally, back in November and December, was a shift in National growth projections but had to be 'codified' with Legislation that wouldn't come quite so quickly.

Conclusion: We viewed preceding patterns as fairly orderly if technically all part of short-term distribution, but didn't see the usual euphoria that typifies absolute tops, and serves as more than a warning sign. So yes, tax relief is capable of assisting the market, as is the new 'Innovation Center' that Jared Kushner is now going to head-up. However, there's a lot riding on the technical efforts to rebound as are underway short-term.