Taking Stock

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Tony Crowell
Tony Crowell

Floodtide

Finally, the stock market showed some sustained momentum for the first time this year. “The winter of our discontent” is over; whether the newly reestablished uptrend will lead to the “glorious summer” foretold in those opening lines from Richard III is uncertain. The Federal Reserve recently reported that the U.S. economy is gathering strength. Investors remain skeptical, scarred by a severe recession only a few years ago and confronted with global economic uncertainties.

While the labor market is currently improving, some disturbing long-range economic trends continue. A recent New York Times editorial attributes these trends with creating a growing disillusioned political class whose anger is impacting the current Presidential campaigns.

The postwar boom, measured by the purchasing power of the average paycheck, continued into the 1970’s and then stopped, building for over 40 years an economic basis for voter anger among the middle and working classes. Things got worse as net upward mobility ended around 2000. After that, the middle class continued to shrink but so did the percentage of households with incomes over $100,000. The only growing group was those with incomes below $35,000. Americans were moving down the economic ladder.

Concurrently, trade with China shot up after it entered the World Trade Organization in 2001. This imposed unanticipated pressures on American workers, most harshly on those on the lower rungs of the ladder. Export-oriented industries like jet aircraft and pharmaceuticals and high wageworkers adjusted but sectors exposed to import competition like furniture and apparel and low wageworkers suffered.

The resulting resentments intensified after the financial collapse in 2008. Many felt that the government bailed out the financial elite while the less fortunate lost their homes or their jobs with growing gaps in inequality. All this left a growing constituency with legitimate grievances.

This is not a political column but it is clear that Mr. Trump has mobilized this angry constituency. If he prevails, I have my doubts that he is competent to improve the lives of the credulous and angry who are lining up to support him. If he is somehow sidelined, his supporters will be left even more bitter and angry. Over the next eight [!] months, the increasing intensity of a bitter political contest is likely to damage investor confidence, slowing further advances in the stock market.

This country still provides the largest and most open economic opportunities anywhere; it will survive the forthcoming negative sound and fury. With the market in a new uptrend, investors can shake a few reefs out of the sails; stocks in growing solid blue chips will keep them on course.

Apple (AAPL-$101) is back above $100. Its stock often sags between its quarterly reports as critics compete for media attention, and then perks up when the company reports its actual progress. The next report is due in late April and its current P/E ratio of is quite reasonable. The blue chip trio of General Electric (GE), Intel (INTC) and Pfizer (PFE) are each currently trading at $30, headed for an aggregate of $100 by yearend.

Genpact Ltd (G-$26) is my latest buy recommendation. It is a global leader in outsourced digital business process management. Originated as a division of General Electric in 1997 with 20 employees, it went public in 2007 and now employs 70,000 in 25 countries. 2015 sales were $2.46 billion, up 8%, with earnings per share of $1.26, up 22%. Next report is due 4/28 and I suggest initial buys before then.

Forthcoming political negativity and financial media alarmism will pressure stock prices while improving earnings will boost stock prices. Shakespeare again, this time from Julius Caesar. “There is a tide in the affairs of men which, taken at the flood, leads on to fortune.. . On such a full sea are we now afloat; And we must take the current when it serves.”

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622

www.crowellroberts.com

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