Why Is the Market Hitting New Highs?

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Aug 28, 2018, 4:01:42 PM

and tagged Commentary

Leave a comment

market hitting new highsMaybe I should go away more often. When I left for vacation about two weeks ago, markets were pulling back on worries about Turkey. But after 10 days in Iceland (largely free of the news cycle), I come back to find markets hitting new highs. What is going on?

Risks starting to fade

Here is what I think. In the past two weeks, we have seen several risks that had been holding the market back start to fade. Fed Chairman Jerome Powell, for example, made a point in his speech at Jackson Hole that the economy was strong (repeating that several times) and that the Fed expected it to stay that way. Powerful stuff, for those who were worried about the economy. Plus, Turkey and other emerging markets—rather than continuing to drop—have modestly rebounded since I left. This rebound has eased the concerns of those who felt this was 1998 all over again. And for those who worried about trade wars? The news yesterday of the trade deal with Mexico is proof that the Trump administration’s strategy can actually lead to deals and not just to more conflict. In other words, in the past two weeks, three of the major worries that have been holding the market back have eased significantly.

It is also worth noting that despite these worries, in the past six months, the market has actually been pretty stable. Now, we certainly saw a pullback in April. Since then, however, the story has been of steady appreciation, even as the worries kept accumulating. When those worries started to ease, that upward momentum gave us the recent pop.

What do these highs mean for the rest of the year?

I suspect more of the same for the rest of the year. With fewer worries holding the market back, continued appreciation in the face of strong fundamentals seems reasonable. My own target—of 3,000 for the S&P 500 at the end of the year—remains very possible and may even end up being conservative. In fact, that is just what I talked about with Scott Gamm earlier today on TheStreet.

Other positive signs include today’s consumer confidence reading, at a 17-year high; the positive performance of retailers, especially in the luxury space; and the very tight labor market. High confidence for both consumers and investors has typically been a self-fulfilling prophecy. We may well be at that stage of the cycle when the good times start to roll.

Good times won’t last forever

It won’t last forever, of course. Some turbulence is possible—even likely—in September and October, two notoriously volatile months. If we do get turbulence, though, it is worth keeping in mind what has happened over the year so far: When worries accumulated, the market rose. When the worries subsided, the market rose further. As long as the fundamentals remain solid, that trend is likely to continue.

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®