The clear consensus among investors is that a catastrophic fall in the market is imminent. We all love to focus on the effects of the government and Federal Reserve's meddling in the economy, most notably a massive $17.5 trillion in debt for the country and another $4 trillion debt held at the Fed. It is truly unbelievable, unfathomable and just downright wrong. I will admit that this danger at our door is not all that far away, so although it might feel like easy street, proceed with caution and have your exit plan ready.
Pessimistic Consensus is the first of the 3 things that will keep stocks going higher. Very simply, stocks do not crash when everyone expects them to. The market loves to ride a wall of worry higher, and this is easily the most unloved rally I have seen in my 30 years in the business. Therefore, our first winner is not going to bring the stock market to its knees, not yet. Not until the other 2 get out of the way at least.
Our 2nd winner that will help propel stocks is Growing Corporate Earnings. Corporate America has become lean and mean, adjusting to the "new economy," producing goods and services that meet demands of the shrinking consumer base. As I discuss in Facing Goliath - How to Triumph in the Dangerous Market Ahead, the aging 90 million plus baby boomer generation is well past their spending years, while the 65 million Gen X'ers can't keep up the pace of consumption. This is going to go on for another 5-8 years. Those with money will prosper while those without will languish.
Our 3rd and final victor is Negative Inflation. Negative inflation is very low inflation and not quite deflation, mostly because of the fed's stimulus money printing programs. A capitalist economy needs a level of inflation, or consumers will stop spending because things will be cheaper tomorrow. That's what happened in Japan.
Last week both the PPI and CPI came in at 1/10 of 1% gain. It doesn't get any smaller than that. This is the one that scares the bejeesus out of the Federal Reserve because Inflation is running well under the Fed's 2% target. Not until inflation picks up significantly will they even think about raising interest rates. We're a couple of years away from that, but prepare now and have your portfolio invested properly because when inflation finally gets here, it will get ugly!
With the dog days of summer almost behind us, the market looks ripe for new highs and a strong 4th quarter. Investors should focus on the strong growth companies. Apple (NASDAQ:AAPL) is top of the list with the release of their product line coming out in a few weeks and you can be sure tit's new products will be amazing; Microsoft (NASDAQ:MSFT), which is the staple for every computer made; Intel (NASDAQ:INTC), which is enjoying a major multi-year breakout; Google (NASDAQ:GOOG) (NASDAQ:GOOGL), whose earnings were once again in the stratosphere; Netflix (NASDAQ:NFLX), which is revolutionizing media delivery and will have the earnings to prove it; and Facebook (NASDAQ:FB), a social media staple and is winning over the older crowd - the very people with money and who will not be upset by the company's ads. Or simply buy the market ETFs like the PowerShares QQQ Trust ETF (NASDAQ:QQQ) and the SPDR S&P 500 Trust ETF (NYSEARCA:SPY). If you are cautious and want to play the downside, or want some portfolio insurance, look towards the ProShares Short S&P 500 ETF (NYSEARCA:SH) or the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX).
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.