INSIGHTS

On April 10, 2017

AAM Viewpoints – A Yogi Berra Market

As I reiterate my unbending bullish outlook for stocks it occurs to me that the technical data I cite for my constructive stance today is consistent with my findings from several years ago when the DJIA (Dow Jones Industrial Average) stood thousands of points below today’s near-record levels. “It’s déjà vu, all over again!” My technical findings reveal a stock market whose internal structure continues to regenerate bullish price architecture bolstered by recurrent positive net money trends. In short, as the market has moved higher in this long and enduring bullish cycle it has established formidable support at incrementally higher levels. From a technical perspective, I believe this presents a stable, attractive risk/reward ratio, while also contributing notable resiliency in an environment of challenging headline events. The ongoing, northbound course for stocks is one for the record books.

As the market continues to move into uncharted territory, it has not produced telltale signs of an overheated or unreasonably overvalued investment environment. For market bears, it has become sport to target-hunt the timing and magnitude of a decline, often basing such forecasts on politically focused events. The November election outcome, for example, was expected to incite a major, indiscriminate selling stampede. And more recently, bears set their sights on the failure of the proposed health care fix to successfully gain House votes as a timeline for a big retreat. Yet, today the DJIA stands within a stone’s-throw of its all-time highs.

It is still somewhat of a Rodney Dangerfield market: no respect for its many monumental accomplishments. This is not the psyche typically associated with a major market top. And, it is not a market simply scaling a wall of worry. The market – for all its positive strides and record setting feats – continues to present broad and diverse sector leadership, balanced relative strength performances among large, medium and smaller capitalization stocks and on-balance volume that reflects steady accumulation without undue speculation in both growth and value.  These formidable traits present a “Yogi Berra market cycle” of technical déjà vu that could go into extra innings.

I believe some of the most exciting and rewarding days in the stock market still lay ahead since indications typical of a shift to late-stage technical characteristics remain subtle or absent altogether. Sector rotation has addressed occasional price and sentiment excesses that have developed when a particular sector or theme runs well ahead of the pack or becomes a “crowded traded.” This reinforces my view that the market may not sustain a pullback greater than 10% before the DJIA crosses 22,000. And, I am eyeing my ultimate target of 25,000 as subject to significant upward revision. While consensus forecasts call for single-digit stock returns this year, I think the market is ripe for a positive surprise on this score.