3,047 Days Into This Bull Market. What's Next?

Summary

• Our contention is that U.S. growth is heating up, and inflation is cooling down.
• Stay away from anything tied to inflation, like Energy stocks.
• Stay long U.S. stocks as the U.S. economy accelerates throughout 2017.

The bull market in U.S. stocks has now headed into its eighth year.

Considering that a bear market, as noted by a correction of 20% or more, happens on average every 3.5 years, writes Hedgeye Director of Research Daryl Jones in today's Early Look, this recent bull-run is one for the record books. But that doesn’t mean this bull market is over. As Jones writes:

In the Chart of the Day, we show a long term view of the S&P 500 going back to 1950. Over time, the biggest risk to investors has been underperformance due to ignoring or doubting the potential for bull markets to run. As an example, from 1982 to 2000 the S&P 500 experienced a return of over 1,000%. If you missed any significant part of that, you are probably no longer in the stock market operating business."

Our contention is that U.S. growth is heating up, and inflation is cooling down. This environment has historically been the most favorable for U.S. stocks.

What's up with inflation falling

This morning we had an essential update on consumer prices. Year-over-year headline CPI decelerated for a 4th consecutive month. Core inflation decelerated for a 5th consecutive month.

We continue to think disinflation remains the reality over the balance of the year – a reality Fed head Janet Yellen will have to give more than a subtle nod to over the coming months. It's also worth noting that inflation subtracts from U.S. GDP. To the extent inflation continues to fall, that will be supportive of our U.S. #GrowthAccelerating call.

Investment conclusion: Stay away from anything tied to inflation, like Energy stocks (XLE).

What's up with the U.S. growth accelerating

We received critical updates for the U.S. economy this morning on Industrial Production and Retail Sales. To be sure, the data has been mixed for the month of June, but we reiterate our call that U.S. growth is accelerating. Here's a rundown of the data.

• Retail Sales, Control Group (this is the Retail Sales input for U.S. GDP) fell to 2.4% in June versus May's 2.9%.

• Industrial Production rose slightly to 1.97% in June from May's 1.95%.

• Factory Orders accelerated to 4.2% year over year versus 3.7% in the prior month

• Industrial Production accelerated to +2.2% year over year (a 29-month high)

• Durable Goods Ex-Defense & Aircraft (a proxy for household spending) accelerated from +3.7% year over year in April to +5.3% in May. That's a 33-month high.

• Capital Goods (CAPEX) accelerated from +3.1% year over year growth in April to +5.0% in May. That's a 33-month high too.

We'll let you be the judge of which direction U.S. economic data is heading. Here's our thinking.

Investment conclusion: Stay long U.S. stocks (SPY) as the U.S. economy accelerates throughout 2017.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.