Mueller aside, why the stock market could be about to deliver explosive gains

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While it might not amount to “total exoneration,” as Donald Trump put it, it’s hard to argue — though there’s no shortage of people willing to try — that the Mueller report didn’t deliver a big win for the president.

But is it a victory for investors?

So far, the stock market isn’t exactly popping the champagne as Friday’s selling mood seems to be spilling over into early action.

Nevertheless, there are plenty of pundits who believe it’s just a matter of time before the bull shakes off the latest weakness and gets back on track now that at least some uncertainty has been lifted.

‘A melt-up in the current environment would be supported by the combination of loose monetary policy and easy fiscal policy.’

Cam Hui

The anonymous blogger The Fly, for instance, put it in his own terms.

“Markets will likely favor this news, since Trump is a super easy money dork — who box watches stocks all day and really wants to get a trade deal done — a very beautiful one at that — to establish a legacy of being the best stock market promoter in the history of American politics,” he wrote.

Others, however, were much more measured with their optimism.

“It frees [Trump] up to focus on infrastructure and housing reform,” says Larry McDonald of the Bear Traps Report. “We will rally on this but everything that took us down last week will keep rearing it’s ugly head again.”

Stephen Weiss, founder of Short Hills Capital Partners, agreed that any benefit might be short-lived, according to CNBC.

“I think the market was going to bounce back anyway and this gives it a little extra oomph,” he said. “But overall the investigation rarely was a big concern for investors. If there is a big pop on this, you can likely fade it.”

So, popular sentiment among Wall Street types seems to be that, for this Trump stuff to result in any meaningful momentum, other pieces need to fall into place.

In our call of the day, portfolio manager Cam Hui, who writes for the Humble Student of the Markets blog, says there’s a “decent chance” stocks, “exoneration” aside, are about to deliver explosive gains; perhaps as much as 57%.

Why? The Fed.

“One parallel to the market hiccup of late 2018 would be 1998, when the Fed stepped in to rescue the financial system in the wake of the Russia Crisis,” Hui wrote in a post on Sunday. “A melt-up in the current environment would be supported by the combination of loose monetary policy and easy fiscal policy.”

He used this chart as an example of the kind of action we could see:

The crisis in Russia’s markets was triggered when Moscow devalued the ruble, defaulted on domestic debt and declared a moratorium on payments to foreign creditors. As the chart illustrates, U.S. stocks also felt the sting. In fact, a direct result of the crisis was the collapse of Long Term Capital Management.

The damage in the U.S., however, didn’t last long and stocks would soon take off on that historic dot-com run. If a similar melt-up takes place over the next 18 months, like Hui suggests is possible, the S&P SPX, +0.32% would approach 4,400.

Stocks clearly aren’t heading in that direction just yet.

The market

The Nasdaq Composite COMP, +0.26% Dow Jones Industrial Average DJIA, +0.23% and S&P 500 didn’t show much of a bounce after Friday’s demolition, but they did manage to bounce off lows.

The euro EURUSD, -0.3093%  is up slightly, putting a bit of pressure on the dollar DXY, +0.09% The pound GBPUSD, +0.2046%  is barely budging. Gold US:GCU8 is up, while crude prices US:CLU8 are down more than 1%.

Europe stocks SXXP, +0.77%  pulled back, though they got a small boost from upbeat German business sentiment data. Asian equities ADOW, +0.65%  got hit hard on mounting recession fears.

The buzz

Keep an eye on that yield curve. The closely watched measure briefly inverted Friday — with the yield on the 10-year Treasury note TMUBMUSD10Y, +0.44%  falling below the yield on the 3-month T-bill — and rattled the stock by underlining investor worries over a potential recession.

Apple AAPL, -0.51%  will shift its business further toward the services side Monday, according to a new report a day before the unveiling of its highly anticipated streaming-video service. According to the Wall Street Journal, Apple will charge for the service, contrary to a September report that said it would be offered free to users of Apple devices. The exact price has not yet been revealed.

Elon Musk announced Sunday that prices on all Tesla TSLA, +2.53%  inventory cars will rise by about 3% on April 1. “To be clear, this doesn’t affect Tesla website order prices,” Musk added. “Existing inventory prices are currently slightly lower than on website. This will bring them in line.” Tesla shares are down more than 20% year to date, compared to the S&P 500 12% gain.

The chart

Are you afraid of black swan events wreaking havoc on your portfolio? If you are, Nicolas Rabener of FactorResearch says you’re being irrational. “If the event will be a surprise, should investors fear it?” he asked. “It is questionable if investors should or can prepare specifically for these kinds of events.” And even if you knew one was coming, you couldn’t possibly predict the impact, according to his research, which takes a look at several such events dating back to 1990.

Here’s the chart of what happened in the week that followed each one:

“This short research note highlights that factor returns were almost random after black swan and major events, which indicates the challenges of portfolio positioning even if an investor could anticipate such an event,” Rabener wrote in a blog post. “Diversification across factors and asset classes is likely the best way to prepare for the expected and unexpected.”

The stat
Universal Pictures/Courtesy Everett Collection

US, Lupita Nyong’o, 2019.

$70.3 million: That’s how much Jordan Peele’s new movie, “Us,” sold in its opening weekend, setting a new record for an original horror movie.

The economy

The Chicago Fed National Activity Index for February was released at 8:30 a.m. Eastern, along with the Dallas Fed manufacturing survey. But the real data highlights hit later in the week with Case-Shiller house prices due Tuesday and February housing starts and new homes sales numbers released Friday.

The quote
Comedy Central

“To get that money, Lebron would have to stay on the Lakers until the year 4899, and they probably still won’t make the playoffs” — comedian Neal Brennan, putting Amazon AMZN, +0.21%  CEO Jeff Bezos’s enormous fortune in perspective on Comedy Central’s The Daily Show.

Read: Centibillionaire club welcomes newest member

The tweet

Michael Scott scouting the Democratic candidates so you don’t have to:

Random reads

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Gronk hangs it up at the ripe old age of 29.

Yale students share their thoughts on all this admissions stuff.

Meanwhile, rap legend Dr. Dre’s daughter got into USC all on her own, unless you count that $70-million donation.

More tragedy in the aftermath of the Parkland shootings.

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