Financial Industry Insights from Advisors Asset Management


AAM Viewpoints – The Indefatigable Running of the Bull


Headline news events continue to spur volatility, but these challenges have not disrupted or, in any meaningful way, altered the market’s underlying bullish trend. Although there have been several instances of expansive price swings this year, the volatility associated with investors reactions to news developments mainly have been manifested by accelerated rotational movements, especially those that occurred near the start of this year among the “momentum” leaders. News items and political uncertainties served as triggering mechanisms for what arguably were overdue consolidations in Consumer Discretionary, Health Care, Technology and other aggressive growth leaders. But, once again, seismic reactions to current events proved to be relatively short lived. Pullbacks efficiently reined in price and sentiment excesses in certain sectors and themes without impacting the broader market. In fact, the major indices continued to post record highs even as leadership in some Wall Street darlings lapsed temporarily. Declines proved to be technically constructive exercises that shook complacency and successfully tested intermediate-term trendlines.

Accelerating rotation can, at times, reflect shifts in market psychology, ushering in a changing investment environment that is more narrowly focused or speculative. From a top-down perspective, this does not appear to be the case. A review of the major market indices year to date finds that performances are more closely aligned than last year. Currently the DJIA (Dow Jones Industrial Average) and NASDAQ are in a virtual dead heat, each up about 14% – a stark contrast to last years’ results when the NASDAQ gained 43.64% against the DJIA’s +7.25% performance. This more balanced action may indicate that last year’s lopsided returns have been effectively addressed with the active rotation during the past seven months. This year’s stock indices’ returns are also complemented and reinforced by broad participation among various sectors, themes and capitalization tiers – certainly not the typical profile of an impending market top. In fact, we have regularly increased our longer-term support and upside targets for the DJIA, which is attributable to the orderly and durable advances in numerous individual stocks. In sum, market volatility to date has not altered the technically attractive risk/reward ratio that has prevailed through much of this bull market.

This may be another year within the span of this long-running bullish cycle that amplifies the importance of a buy and hold strategy. Reacting indiscriminately to short-term volatility may risk selling prematurely amid news, rumors or even political banter and being left behind in the potentially longer-term advance. While this may not always prove to be the case, chances are good that the underlying foundation for stocks will remain sturdy as long as earnings comparisons continue to outpace analysts’ forecasts and the Fed transparently telegraphs its intentions well in advance of initiating interest rate hikes. Second quarter earnings season is continuing a long-standing pattern of substantial earnings beats and the Fed has indicated it will not begin to raise interest rates until 2023. Interest rates and earnings play historically critical roles in determining market direction and both appear bullishly aligned. Perhaps, something to keep in mind the next time another “down and dirty” retreat unfolds over the short run.

CRN: 2021-0809-9381 R

The opinions and views of this commentary are that of Peroni Portfolio Advisors and are not necessarily that of Advisors Asset Management.

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


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