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AAM Viewpoints- Headline Blurbs Tempering Bullish Sentiment


This bull market is no turkey. In its unprecedented run dating back to late 2002, this cycle has been remarkable for its ability to quickly dispatch worries over a plethora of items ranging from the European debt crisis to the Ebola outbreak and, more recently, concerns over Turkey’s weakening economy. Even the financial crisis of 2007-2008 did not keep the market down for long.  And, when it bottomed in early 2009 it roared back with gusto even more momentous than the bullish stretch between October 2002 and October 2007. Ironically, these and other headline events may have been substantially responsible for the market’s elasticity and propulsion inasmuch as the Federal Reserve Board was compelled to be at the ready to lower interest rates and initiate several tiers of quantitative easing (QE). Since the November 2016 elections, however, the market has rallied without further quantitative easing, advancing convincingly amid a steady stream of economic glad tidings attributable, in large part, to regulatory and tax reforms. For those who insisted the market was addicted to QE, this was a shocking surprise. Stocks have been driven higher by bullish perceptions among investors about the outlook for earnings growth. Second quarter earnings for 2018 beat Wall Street expectations by the greatest majority of any quarter thus far in this cycle. The core leadership categories including consumer discretionary, health care, manufacturing and technology continue to exhibit positive relative strength with an array of stocks within these sectors rallying on their latest earnings outcomes. There was no discernable trend during the reporting season of ‘selling into the good news’ that might portend a market peak.

For over a decade I have commented on the broad and diverse sector leadership that has driven this market to an unprecedented series of all-time record highs. This is the cornerstone of my bullish perspective – that the market is not built on a single micro-themed pillar but instead on the formidable foundation of deep sector sponsorship and consistent participation among the various capitulation tiers. Surely, steep and abrupt pullbacks will occur at varied intervals, but past such episodes have proven constructive for the long haul by reining in price and sentiment excesses while establishing support at incrementally higher levels. As a result, I believe the market’s risk/reward remains attractive at these levels. Headline news seems to be a tempering mechanism that is keeping bullish sentiment in check. Bull markets usually end when investors are in a euphoric state. It is my observation that traders are still quick to scamper in reaction to daily news blurbs. That seems more a sign of trepidation than burgeoning euphoria. I believe ‘time-in’ remains the most appropriate strategy.

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.

CRN 2018-0806-6818 R.

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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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