These Go to 11

“An investment in knowledge always pays the best interest”
(Benjamin Franklin)

[Nigel Tufnel]: "You see, most blokes will be playing at 10. You’re on 10, all the way up, all the way up...Where can you go from there? Nowhere. What we do, is if we need that extra push over the cliff...Eleven. One louder."

[Marty DiBergi]: "Why don’t you just make 10 louder and make 10 be the top number, and make that a little louder?"

[Nigel (after taking a moment to let this sink in)]: "These go to 11."

This scene from the classic spoof “Rockumentary” This is Spinal Tap is a fitting analogy for the markets today. The global economy continues to expand, corporate revenues and earnings are solid and, despite frothy valuations, the stock market continues to chug up “to 11” and beyond.

There is a certain level of complacency to the market that gives us pause, as if there is nothing that could stop the relentless rise. A reading of 20% or lower on the VIX, a commonly used metric of stock market volatility, is generally considered to indicate a fairly quiescent market. With the exception of a few daily spikes, the VIX has generally traded below 15% for the past six months, and in the 10% -- 11% range for much of the past month. That strikes us as almost too quiet.

President Trump continues to have good days and bad days, but parts of his agenda (healthcare reform, tax reform) have at least begun to slog their way through Congress. We think it unlikely that anything significant will make it back to his desk for signature before late this year, and more likely not until next year.

Trump continues to rescind or overturn certain Executive Orders that were issued under the previous administration – a process that does not require Congressional approval. Most of the rescissions (regarding, for example, oil pipelines or prohibitive regulations) have generally been viewed as business friendly.

He faced fierce criticism, though, from both Democrats and many business leaders when he announced recently that the US would pull out of the Paris Climate Accord (which he could do unilaterally because Barack Obama never submitted the Accord to the Senate to have it ratified as a treaty, which would then have been binding).