The US Stock Market: The Momentum of Now
Bulls abound as we start our freaky week.
It's a brand-new week on Wall Street and the holiday cheer is self-evident. Last week, we touched on the scope and breadth of this year's stock market rally—92% of the S&P 500 (INDEXSP:.INX) is up 29% on average—and this morning, an article from Bloomberg suggests the rally will "pick up steam through year-end," if history is a guide.
Looking back since 1928, shares climbed in the final two months 82% of the time when the S&P gained 10% or more through October. The mean increase for November and December was 6% which, if accomplished anew, would target S&P 1892 into year-end.
The momentum is there, of course, but past results never guarantee future returns. A prominent director of investment strategy was quoted in the article saying, "Clients ask me, 'Why don't I take profit now?' My theory is you can sell a lot higher later." That may prove true; I just wonder how many others are thinking the same.
While bears will point to sluggish growth, uninspired labor markets, and artificial stimuli that will presumably end one day, the number of bulls seems to increase alongside the year-to-date returns. Abby Joseph Cohen of Goldman Sachs (NYSE:GS) is pointing to how inexpensive the market was on a P/E basis to start the year—and still thinks it is "underpriced on a 12- to 18-month period."
As my friend Jeff Saut once taught me, “Where you stand is a function of where you sit.”
The bulls have some gravitas after a 160% rally the last four years, just as the bears growled loudly in 2008 and 2009 after a massive decline. It's the way of the world, particularly on Wall Street where you're only as good as your last trade, perception is reality, and fear and greed drives decisions.
Hands over ears and eyes glued to our screens, we might actually arrive at the conclusion that all is well in the world.
The Federal Reserve may indeed induce a state of financial nirvana if it can pull off Operation Rug Sweep, but that requires a matter of trust and leap of faith. That doesn't come easy for the masses who have suffered as a result of the policies, but everything is funny when you're making money and few want to hear about the other side of that trade right now.
With the market in no-man's-land through a technical lens, one would be wise to define risk, maintain perspective, and remain lucid. History has rarely been kind to investors who bought (or sold) because everyone else was doing it; this time could be different, for two months or longer, but we would be wise to see both sides.
Twitter (NYSE:TWTR) opens for trading on Thursday—presumably in 140 characters or less—which will highlight a busy week for financial markets. Today, the ECB will announce its rate decision (and perhaps further market operations on Thursday), and October Non-Farm Payrolls will be released on Friday, complete with an asterisk for the government shutdown.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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