Can The Bull Market Keep on Kicking?

Does the stock market (SPY, QQQ & IWM) have more momentum and upward energy to keep making more new highs?  Or are the markets running out of steam and need a pullback before going higher?  We will explore these questions and a few others in this week’s Market Outlook. 

Welcome back, glad to have you with us for our update and Big View bullets (and don’t forget to watch Keith’s videos that follow which are most insightful).

A difference of opinions.

Last week a friend of mine who I used to do business with at my old firm called me to discuss the market.  He is certain that we are about to go through a correction that may turn into a meltdown.  His view, and several others that I follow, is that the markets are setting up for a very big correction, much more than the normal 10% that we go through almost yearly.

He gave me all the reasons that he believes (and gets from other writers, especially the numerous doom and gloom newsletters that exist only because they are so negative).  He rattled off issues that may exist with the stock market, (especially the NASDAQ 100, QQQ) that included “the market is too expensive, selling at elevated price to earnings ratios, price to book, etc.  Or that the market is being supported by just a few stocks that are driving all the returns”  (We addressed this in last week’s Market Outlook, if you have not read it yet, you can access it here).

My friend, an advisor, has a significant portion of his clients’ assets parked on the sidelines in conservative interest bearing instruments. His belief (and many others especially negative newsletter writers) is that we will get a 20-25% move down and hopefully be able to buy back into the market at 2022 prices.  

My opinion is this is not likely to happen.  PLEASE, go back and review my recent Market Outlooks and reread and review all the charts and graphs, especially those that are put out by Ryan Detrick of The Carson Group that show what happens if the first 3, 4 or 5 months are positive in any given year and what typically transpires the remainder of the year or next 12 months. Additional charts show what occurs after the year starts with a 10% + return through May, especially in an election year.  All of these can be found in the Market Outlook archives within Big View.

Looking at the Bullish and Bearish cases.

I did some additional research to wade through the above potential issues that my friend and others have been suggesting.  I found lots of evidence that does not support that we will see a meltdown, as they suggest.  I will share some of the rebuttals with you in this column.

While I do believe the market has gone up well above expectations in the first half of this year and may certainly be due for a normal pullback or healthy correction, my views are supported that earnings have been stellar, earnings growth well above expectations, and the markets are fully expecting an easing from the Federal Reserve which should help to sustain market multiples and justify where the market sits today.  These facts should help keep the winds at our backs and not force any major crash, at least anytime soon.

The markets continue to make new highs and belie any of the negative soothsayers.  See an illustration from Friday below: