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AAM Viewpoints – R-E-S-P-E-C-T


In our May 28, 2014 Viewpoints I labeled the equity rally as the “Rodney Dangerfield bull market of all time.” The investment community seemed fearful and frightened of the Dow’s historic heights above 16,400 and – at best – were cautiously optimistic. The media was also dismissive and provided little lip service or fanfare considering the stock market’s record high accomplishments. Neither the market’s steep gains from its March 2009 lows or its impressive resiliency amid such challenging headline events as the European debt crisis or China’s slowing economy got any respect from investors or pundits. Stocks climbed the proverbial “Wall of Worry.” However, that “wall” proved to be an incoming wave of glad tidings on the earnings front. Today with the DJIA 8,000 points above its May 2014 levels, the market has earned more respect, but I believe its record-setting feats are still far from pinning Wall Street’s euphoria meter.

As the long awaited 10% correction in February revealed, investors were more prone to fleeing the scene rather than staying the course through heightened volatility. This was evident in the sharp spike in the CBOE Volatility Index (VIX) which dashed from single-digit levels just weeks earlier to redline panic at 50 when the Dow Jones Industrial Average (DJIA) briefly violated the 24,000 area, ringing the official “correction” bell. For the better part of two years Wall Street awaited the elusive 10% retreat, the arrival of which arguably was long overdue by the time it finally materialized. Rather than seize the opportunity, many investors were seized with fear and it soon became evident that a “time in” rather than a “timing” strategy would have been the better choice. Those who proclaimed that “buy-and-hold” was a dinosaur strategy years ago were proven wrong once more as they failed to recognize and respect a recurring theme in this bull market cycle: pullbacks large and small have proven to be springboards for higher levels as long as the Fed has maintained a moderate monetary policy stance.

Years ago, I trumpeted the market’s remarkable elasticity amid adverse headlines. Today, I believe the big story is that the market is not selling off into the good news of steadily improving economic data and more numerous corporate earnings upticks. The specter of high inflation on the short-term horizon and the media’s emphasis on non-impactful events on the equity markets (think political coverage) also are not registering lethal blows to the bullish trend. I believe this implies that the market senses something greater than currently anticipated on the longer-term horizon, possibly earnings growth well beyond the expectations of most industry analysts. Therefore, I believe that the obsession with political wrangling and other market peripheral news items is a distraction for what could be a bull market still destined technically to deliver among the most exciting moments yet of this cycle.

 

CRN: 2018-0305-6470 R

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.

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