New market thoughts from Raymond James’ Jeff Saut: “The Gap” 03/07/17

“Mind the gap”
. . . A phrase that is repeated at every stop on the British underground subway system
According to The Urban Dictionary, “Mind the gap – is a famous phrase that is said at the London Underground warning people who use the subway to be wary of the gap between the train and the platform. It has become synonymous with the London Underground and is repeated several times by American tourists who find the phrase fascinating and funny.” In this case, however, we are using “mind the gap” to highlight the “gap” created in the chart of the S&P 500. Said “gap” occurred last Wednesday when the major market indices spiked higher on DJT’s address the night before (see chart). Such gaps are usually filled within three sessions, but in yesterday’s trading that just didn’t happen. Of course in the “markets can do anything” vein, not all gaps are filled. There was a gap in the charts for the shares of Chrysler Motors at around $2.50 back in 1982. I remember a number of portfolio managers (PMs) were waiting for it to be filled, but it never was. And then there was this quip from Bob Doll yesterday:
• “Stock prices continue to rally as economic data improve and investors remain optimistic about the political backdrop.
• We think this optimism may be overdone and markets could be vulnerable to disappointments.
• Nevertheless, we have a constructive view toward equities and think a pro-growth investment stance is warranted.”
It is always been amazing to me how much Bob and I think alike, but I digress. There have been a lot of questions from PMs here at the conference about whether Value will outperform Growth, or vice versa. To that question my pal Frederick “Shad” Rowe (Greenbrier Partners) recently wrote:
“Given the changes we see taking place, we would suggest a new definition for a value stock: the company in question must offer real and growing value to the customer, rather than just being a statistically cheap stock. Our portfolio would seem to reflect this definition – the companies we own constantly drive to create true customer value. Despite the relative rarity of companies that fit this approach, we continue to search.”
The fact that the “gap” was not filled is actually bullish in the short-term, which could spark a rally leading to the potential for a double-top at the 2400 level basis the SPX. Consequently, we are still cautious on a trading basis. This morning the preopening S&P 500 futures are relatively flat (-4.00) at 5 a.m. as South Korea begins to deploy anti-missile systems after North Korea’s recent missile launch. There is increased worry in D.C. regarding North Korea. And don’t look now, but Juppe’s exit from the French election gives Le Pen the edge as the euro plunges with participants worrying about France leaving the EU.

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