The Market: February 2017

As we move into February, stocks continue to show strength, albeit without the explosiveness we witnessed in January. 

Expectations for policy changes such as a reduction in regulations, tax reform, and increased spending continue to support the bulls.  However, the optimism may be losing some of its luster. 

Interest in safety trades

There seems to be greater interest in “safety trades”.  Gold, US Treasuries, and defensive stocks are attracting investor attention.  Some of the caution is US-centric with concerns about erratic tweets, the ability of the President to produce a coherent pro-growth agenda, and a concern that US policy may reduce global trade.

Worries about European elections and Brexit

The rest of the worries focus on the upcoming elections in Europe and the start of Brexit talks. 

Dutch elections

The Dutch anti-Euro party PVV, led by Geert Wilders, is leading in the polls and is likely to win the largest number of seats in the March 15th election. 

French elections

The Dutch election will be followed by a national election in France where the leading candidate, center-right Francois Fillon, has been hurt by scandal.  With Fillon’s prospects in decline, the far-right, anti-EU candidate Marine Le Pen’s chances for victory increased.  France goes to the polls on April 23rd. 

With anti-EU candidates having a good two weeks in their respective campaigns, it is little wonder why caution has crept back into the markets. 


Adding to the uncertainly, the UK parliament voted today to officially leave the European Union.  While a break-up of the EU would have far-reaching implications and likely would send the markets in a deep tailspin, eventually, the world would go back to the pre-1999 Europe of different currencies and borders. 

It would take time but the world will adjust. 

Will the market climb a wall of worry?

It has long been said that the market “climbs a wall of worry”. 

The concerns about US policy and European elections might be providing the wall upon which the market will move higher.  In some respects, the recent whiffs of caution are comforting to a contrarian. 

Since the election, there has been more optimism than we have seen during this much-hated bull market.  Bull markets end when everyone is in not when there are so many skeptical and on the sidelines. 

Retail challenges the market

One area of the market that is very challenged is retail.  Earnings reports out of Macy’s, Target, Under Armor, and many others were weak due to competition from online firms like Amazon and from reduced margins in their own online channels. 

After an expansion fueled by low-interest rates and the demands of Wall Street, retail companies are now saddled with too much square footage and overhead.  Retail needs to shrink its footprint.  Companies are doing so but it takes time. A knock-on effect is the drag on real estate firms.  Mall operators especially are in trouble.

It’s a lesson that even in a bull market, investors need to be selective. 

— Ian Green, Pendragon Capital Management

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Note: This blog article is intended for general informational purposes only. Nothing in it should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.