If you had a bullish portfolio this spring, you're feeling pretty good right about now. The market (S&P500) is up almost 20% since the lows of February. Tesla (NASDAQ:TSLA) is up 60%, Amazon (NASDAQ:AMZN) is up 56%, Nvidia (NASDAQ:NVDA) is up 128%.
This leads to the question, what has changed since then?
The first point was the fears of a US recession have been denied by a sprawling jobs market and increased consumer spending.
A lot of market experts feared that we would get into a recession with negative GDP growth. (Two quarters with consecutive negative growth is considered a recession.)
US GDP Quarterly Change (Year-over-Year)
Although spending by everyday Americans, the lifeblood of the world's largest economy, grew at the slowest pace in two years. It only grew at a 1.5% annual pace in the first quarter, compared to the estimate of 1.9%. Representing more than two-thirds of the demand in the economy, consumer spending is one of the key indicators of a healthy US economy.
The second point was China with their debt piling on and people start to think it's 2008 all over again.
The biggest difference is that China has many more levers to pull with fiscal (political) and monetary policies. This was clearly shown in May when their manufacturing numbers came out.
Beijing's frontloading of monetary and fiscal stimulus early this year should make it easier for China to reach its 2016 growth target of at least 6.5% this year.
The third point was oil. It had plummeted 40% from November to January and it looked like the whole market was going to crash and burn.
However, after multiple rigs were taken offline and Canadian wildfires brought down the production price rebounded.
So where do we go from here?
The US economy looks strong and will deliver GDP growth of 2.4%-2.7% next two quarters.
We revise up 3Q GDP growth to 2.4% and 4Q to 2.7% due to inventory restocking. This translates to only 1.5% growth this year. Much of the recent weakness owes to mismanagement of inventories, energy and trade shocks. "Core" GDP growth looks healthy. The shocks are fading, allowing for better headline growth in 2H. This would give the Fed the option for a December hike. - Bank of America
The Chinese economy will hit its targets for this year, but increases the future risk of an economic crisis.
We expect output expansion to slow in the second half of the year, averaging 6.5 percent in 2016 and 6.1 percent in 201. We anticipate the policy rates to be reduced by 25 bps by year-end. China's inflation remains manageable, allowing for further stimulus. - Scotiabank
Oil will drop further.
Prices could dip a little further, but none of the market watchers expect a retreat to the $20s. Nor do they see prices going much above $50. Also, most investment banks haven't changed their long-term price forecasts for crude oil to be near $50 toward year's end. -US Bank
The conclusion is, don't expect another 20% rally in the market but don't expect a crash either. It will chug along in its channel and will be an excellent opportunity for stock-pickers to outperform the market.