A Closer Look at the Market’s Strength
December 2, 2016, 4:33 pm
The market closed out November riding all-time highs and yet the feeling amongst individual investors and Wall Street professionals alike is one of angst. It doesn’t seem to matter if they’re bullish, bearish or neutral – I’m seeing plenty of folks on edge.
There are those who wanted to avoid the market until after the election and now are anxious they may be too late to the party (a big reason I’ve been pounding the table for months on staying invested). On the flip side, there are investors who are in stocks and benefited from the post-election climb, but they don’t quite trust the rally and are waiting for the other shoe to drop. And finally, there’s a third group that encompasses the worst characteristics of the other two – folks who have stayed in cash (missing the post-election rally) and choose to remain that way because they do not believe there is strength in this market.
All three groups have one thing in common – they don’t understand what’s really driving this market right now. Even with two corrections in the last 15 months, the charts have been bullish for years now and all of the major indices currently trade near all-time highs. The fundamentals have been suspect because we’ve had to deal with negative earnings growth, a negative GDP, inconsistent jobs numbers and more. But that has all changed in the last few months as the economic numbers are improving and the positive third-quarter earnings growth for the first time in a year shows underlying strength.
The most recent third-quarter GDP reading was revised higher to 3.2%, well above where most analysts would have predicted. There will always be the naysayers who can rip that number apart, but the fact is that the United States grew at a solid pace last quarter and appears to be on track for another strong quarter to end the year. Remember, a recession is by definition two consecutive quarters of negative growth, and looking toward the future we can see absolutely nothing that would lead to even one in the next year. Of course there is always the off chance of a black swan event, but that’s a risk we undertake every day and would be unavoidable.
For now, the economy has a lot working in its favor. Housing numbers, both existing and new, have recently come in at levels not seen in years thanks to an increase in first-time homebuyers led by the millennials. Considering the millennials are the largest demographic in the country, a continued shift in family formation and home buying should be a huge boost to the sector and overall economy. Even November’s jobs report was promising, with the unemployment rate at a historical low.
I could keep rattling off more examples of data improvement for hours, but the bottom line is simply this: The foundation of the U.S. economy is solid and the odds of a recession or steep correction are very low heading into 2017. Add in the possibility of lower regulation and taxes for both corporations and individuals as a result of the incoming Trump administration and that foundation gets even stronger. I believe this strength will lead to a profitable investment environment for us and I look forward to the opportunities ahead!