The Good, the Bad, and the Ugly

Happy May Day! Today is a celebration that traces roots back to the Romans as a way to mark that spring finally appears to be here.  And indeed this year is a real cause for merriment after the brutal winter.  Here in the U.S., Cinco De Mayo has in effect become this celebration over the last 20 years or so.  The Kentucky Derby also concludes what is arguably the greatest five weeks in sports the entire year.  We say enjoy the times, but keep focused on what appears to be a transitioning market. 

There have been three major stories over the past several days that we believe will have an effect on the market both in the short term and through the fall and beyond.

THE GOOD – Yesterday, the Fed indicated an additional cut back on the quantitative easing by reducing the bond buying by $10 billion to $45 billion this month.  This marked the fourth straight meeting with the same reduction.  For once the markets did not nose dive as the DJIA finished up for a record close.  This is a great sign as the markets seem to be pricing in this reality, which should help reduce some volatility. 

THE BAD – The supposed economic recovery has stalled to a turtle’s pace.  The U.S. Commerce Department stated the U.S. GDP expanded just 0.1% for the first quarter of 2014, which is a somewhat drastic slow down from the 2.6% growth for the fourth quarter of 2013.  While this news indicates a continued slow job market and reflects the poor weather in Q1, among other things, there is possibly a silver lining here.  U.S. companies are still sitting on records amount of cash which if unleashed, could mean continued M & A activity and greater hiring, keeping the market bullish.

THE UGLY – President Obama’s approval rating hit an all time low of 41% combined with an all time high disapproval rating of 52% according to results from the ABC News – Washington Post poll released earlier this week.  The midterm elections are just six months away, and barring a major turn-around, the GOP will more than likely take control of the Senate or at least keep control of the House.  What does this mean?  More gridlock at least until 2017.  While this may not be ideal for the country, markets love political certainty.  At this point it would be a minor miracle for the democrats to retake Congress this fall.  Therefore, nothing major probably gets done in Washington for the next 2 ½ years.

Remember our 12 New Tactics for Investment Success from Monday’s  Goldman Guide and keep posted for more tips in the Market Monitor. 

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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