What’s Driving This Market?
The stock market is looking into the future and it likes what it sees.
The biggest advantage out there is low interest rates with a promise from the Federal Reserve not to raise rates anytime soon. That’s a golden ticket. The old euphemism, “Don’t fight the Fed”, is as alive and well as it has ever been. They have continuously said they won’t even consider raising rates until we see at least 2% inflation, and that seems a long way off.
The next benefit I see is that corporate profits are steadily increasing. Remember, stock prices are not driven by politics, news headlines or public sentiment. They are solely driven by corporate earnings. If earnings are on the rise, then stock prices will follow.
Although politics do not drive equity prices in the long term, they do have a short term influence, primarily over our psychology. The new trade deal with China is a huge step forward with one less thing to worry about. In addition, Trump announcing that the tariffs will be in place until after the election, it takes the idea that China will have leverage because of the election out of the equation.
There is also one big intangible that no one is talking about…yet. Our President is now acting presidential. This is instilling confidence in Americans and fear in our overseas counterparts. Like him or not, what he’s doing is working. He won the skirmish with Iran, he’s winning the trade war with China and his tax cuts are helping create the current boom in our economy. If he stays off his Twitter account, we should be fine.
At the moment, the course remains positive. If earnings come in better than expected over the next few weeks as I suspect they will, stocks should continue to rise.
Be prepared though, it is definitely not going to be a straight line upward. There are going to be corrections, possibly scary ones. The kind that make you sick to your stomach and wish you had never invested in the first place. However, given the economic backdrop, they may be painful but they should be brief so do not panic sell or over worry. Corrections are not only normal they are necessary.
I welcome your comments or questions
“Invest for need, not for greed”™”