INSIGHTS

On October 31, 2016

AAM Viewpoints - Scaling the Wall of Worry

There is no lack of dark and dire news in the daily headlines. There is also no shortage of prominent investors spewing predictions of gloom – and even doom – in the financial media. The challenging news stories and the market naysayers have been prevalent for years and yet the major stock indices are trading today within reach of their all-time highs. Of course, we have been hounded by those with bearish agendas who say we should not view the market’s unrelenting resilient nature as anything other than an “artificial” condition which is filled with foolhardy valuations and the false hopes of wishful bulls. The bears’ mantra is that a big bubble is forming.

Common sense alone may not get you over the finish line of investment success. But, we believe a common sense perspective should acknowledge and consider the recurring theme of enduring elasticity in this bull market cycle. Why is it that the market routinely rebounds from downturns large and small with formidable and sustained gains? Of course, the fertile climate of low interest rates and elevated liquidity plays a prominent role. After all, an accommodating monetary policy has driven most past bull markets. The trading elasticity is also spurred by earnings which continue to beat Wall Street analysts’ expectations quarter after quarter. Earnings beats and constructive corporate outlooks are not exclusive to one or two sectors in the prevailing cycle but are broadcast among many different and diverse industry categories. The very fact that this is not a micro-theme driven market has been at the core of my consistently bullish forecasts. Technical? Yes. Common sense? Absolutely. It is rare that a bull market has expired unceremoniously amid broad sector participation, growing earnings and a Fed reluctant to so much as check the brakes.

Ironically, the bears may be playing a role in their losing battle with the bulls. Some of the biggest daily point changes in the Dow Jones Industrial Average (DJIA) recently have been declines: down 394 points, September 9; down 258 points, September 13; down 200 points, October 11. Despite these hammerings, however, the market has clawed back, maintaining a foothold at the 18,000 area. The underlying buying may be founded in low interest rates and growing earnings, but as bears propagate their glib forecasts of doom, bulls gloat about the prospects for stocks to scale a tall ‘”wall of worry.” With the Dow Jones Transportation Average (DJTA) gaining, financials improving and growth stocks participating, we believe the fourth quarter could deliver substantive new highs. While there are distractions galore, including the November elections, the stock market’s message seems clear: there very well may be economic glad tidings on the horizon. The challenge – and potential reward – for investors has been, and could continue to be, holding onto leadership stocks through event-driven, volatile trading periods. Anticipation of the upcoming elections may be fostering a limited trading range. Looking beyond the elections, however, stocks could benefit by the removal of this nagging uncertainty.

CRN: 2016-1003-5565R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information. For additional commentary or financial resources, please visit www.aamlive.com.