Obama’s Hobson’s Choice * - Commentary from Hutchens Investment Management

CONCORD, N.H. - Sept. 9, 2013 - PRLog -- As the Syrian situation percolates, the President on Tuesday night will confront his Hobson’s Choice - - whether or not to attack. The roadblocks to a decision have impacted short-term market volatility. According to Bespoke Investment Group, in 18 of the past 22 trading days the stock market has declined during the last hour. This same trend was apparent last week in three of the four days, the most notable decline on Friday. Last hour trades have long been associated with geo-political uncertainty, as traders are reluctant to hold positions when foreign markets are open or over weekends when there is no outlet to sell. Aside from the short-term considerations of active traders, any economic or stock market fear from the Syrian situation are overblown.

History has shown that stock market performance following the outbreak of both major and minor wars has no lasting effect on global equities markets. Most recently, one year after the first Gulf War the Dow was up almost 5% and five years later it had increased nearly 65%. The second Iraq War in 2003 started during the early stages of the bull market, and the Dow rose 23% in the first year and was up 43.5% just prior to the financial crisis. Afghanistan began during the tech-led bear market in 2001 and through today has had no long-term effect on stock prices. As currently described by US officials, the contemplated military action to punish Assad will be a stock market non-event. As of this writing, the military strike is becoming less and less certain as global support and Congressional endorsement are unlikely. However, if Obama forgoes support and attacks Syria, the major consequence will be a sharp rise in the price of oil. Should this occur, we would expect the President to tap the Strategic Petroleum Reserve. As the possible unintended consequences are headlined, stocks would react negatively.

Fed tapering will most likely begin shortly. The announcement of the move after the FOMC meeting on September 18th is expected. No doubt the release will discuss again the flexibility in this decision, tempering any fears of overt tightening. Bond rates have already discounted a modest decline in purchases, and notwithstanding the problem of structural unemployment, the domestic economy is gaining traction. Recent data, both the manufacturing and service ISM reports, auto sales, construction spending, and housing, outweigh the terrible unemployment data. We were drawn to the resurging light truck sales, particularly the Ford F-150, which are indicative of a small business and a construction “pick up.” Meanwhile the clock is ticking on the implementation of the Affordable Care Act (Obamacare), the debt ceiling and budget, and the formal announcement on the controversial Larry Summers as Fed Chairman.

Our investment policy remains positive on equities. There is a possibility of a short-term correction in this seasonally weak early-Fall.


Authors:
David Minor  
Rebecca Goyette

Editor:
William Hutchens