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AAM Viewpoints – An Uncomplicated Bull Market

When it comes to charting the course of this bull market, let’s keep it simple. The two most reliable “trendsetters” – interest rates and earnings – have been clear and unblinking beacons. No complicated analytical paradigms are required to assess and understand the colossal and unprecedented stock gains in this cycle. The following are several observations about this market and what they may mean for the outlook.

  1. Investors are not selling into good news. There has been much ado about the market’s rally since last November 8. At first, this was attributable to the resolution of a key uncertainty – the election outcome. But, more recently, government data ranging from jobs numbers to manufacturing data has reflected an improving economy. Quarterly earnings have continued to beat Wall Street’s expectations by meaningful margins. With few exceptions, stocks have rallied amid economic glad tidings. Conclusion: Investors believe there is even more positive growth on the horizon likely beyond the scope of current forecasts.
  2. The market has been uncanny in its ability to police price and sentiment excesses. Since the start of this cycle there have been countless rotational consolidations among sector leaders, as well as sharp and abrupt general market declines and theme-specific transient selling routs. Virtually without exception these exercises have routinely curbed complacency, serving as springboards that have launched the major indices into record territory. Conclusion: These relatively short-lived selling episodes have reduced the need for, or the likelihood of, large and sustained declines. The resulting benchmark support established at incrementally higher levels has also bolstered the market’s core leaders. The much-advertised 10% decline has been elusive so far this year and could remain so until the DJIA crosses 22,000.
  3. Today’s leadership is largely representative of the sectors that drove the market out of the 2000-2002 bear market cycle. Consumer discretionary, health care, manufacturing, materials and technology are among the dynamic leadership categories that have driven the market higher and have been at the fore of recoveries following market declines, large and small. Conclusion: There are virtually no signs of undue market speculation that would signal a significant overvalued condition. Valuations may be on the “high-ish” side, but in an environment of burgeoning economic growth prospects, higher price-to-earnings ratios should be expected. This is a market advance established, in part, on excitement and anticipation of forward-looking earnings strides. Some very exciting bull markets have occurred in similar investment environments.
  4. Headlines are not defining the course for stocks. Surely, challenging news stories "du jour" are unsettling and heart wrenching at times. Occasionally the market briefly responds to these headlines. Conclusion: A risk here may be reacting to news stories and market volatility, by selling leading stocks too soon. Peter Lynch wisely remarked that the key to being a successful investor is not timing the market, but time in the market. Words to heed in this market environment, in my opinion.

 

CRN: 2017-0605-5990R 

Opinions in this piece are those of Peroni Portfolio Advisors and are not necessarily that of AAM.

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 at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.

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Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.