A October Overview

The economy stalled a bit in the third quarter as the stream of hurricanes stemmed consumer spending for the three-month period.  The markets have shrugged off this lull and pushed higher with the expectations that the economy would soon recover.   There are several global trends we are following at this point:

Do we get a “game-changing” tax cut? – It appears that we will get the tax cut that most investors are expecting.  The good news – It makes the US businesses more competitive on a global scale.  The bad news – It’s already priced into the equity markets and, if it doesn’t get passed, we would probably experience a hefty correction.   

Will earnings continue to impress? – If recent earnings are any indication, the answer is yes.  In particular, technology earnings have been off the charts.  In fact, Amazon, Alphabet and Microsoft added $80 billion (yes, that’s a “B”) in one day after their recent earnings announcement.  The rest of the S&P has also seen strong improvement.  But, the bigger question is whether or not the earnings can continue higher in the near future.    

The global economies are lifting right now and earnings have been strong.  With low interest rates around the world, this economic growth cycle has legs.  This is a very positive scenario and one we think will push markets higher for the long term.  For now, we are focused on trying to find the best sectors to invest in for this particular economy.

A September Overview

The global markets stalled during the latter part of the summer, but have now reclaimed their footing.  We are continuing to get confirmation of a global economic recovery and the markets outside of the US have continued to lead us higher.  This is in drastic contrast to what we have experienced in the last five years, as the US market has pulled everyone else higher.  But, we believe it’s also a healthy trend as most non-US markets now trade at a pretty heavy discount to the US. 

There are a few trends we think bare watching as we move forward. 

  1. Do we experience technical extremes? – One of the reasons we feel this rally has legs is because we continue to see strong technical internals.  Typically, you would see the internal indicators of the market begin to deteriorate 6-9 months before a top.  We have not seen that yet.   
  2. Will volatility pick up? – One of the indexes we follow closely is called the VIX.  It’s a volatility indicator and it tells us how much variance we are experiencing in the markets.  Today, the VIX is hitting all-time lows and we have to wonder how long that can last.  In reality, the VIX is a better indicator of where/when intermediate-term corrections may come into place.  But, it is useful on a short-term basis. 

The markets are trending higher right now and we feel there is global economic justification as to why.  But, we are starting to get some short-term extremes coming into play.  So, we have a raised eyebrow as to how far we run?  We are encouraged by the global economy, but as always, we will not throw caution to the wind and will continue to monitor the markets for warning signs.  

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