By Jerry Wagner
It was a quiet morning breakfast - French toast and the Sunday paper. Then, the roar of an explosion wrapped around our home. The air rushed in and then out again. Slowly, the reverberations faded away.
We were, to put it mildly, perplexed. It was only later that day that we learned that the Silverdome, just a few miles from our house, had been dynamited. The 43-year-old structure had been targeted for demolition for years. I had missed the story that Sunday was to be the day.
I wish I had known. I probably would have joined the mobs of onlookers and their gigantic traffic jam to watch its demise. I can still remember its construction and the anticipation felt by the entire Detroit metro area waiting for it to open. Now, it would be reduced to a pile of rubble.
Of course, as you probably know by now, the Silverdome's implosion was not to be. A failure in the wiring, perhaps caused by trespassers the night before, caused the explosives attached to the supporting metal columns to fail to ignite.
The failed implosion was reported in most of the media outlets. I like Popular Mechanics' headline the best: "They Tried To Implode the Silverdome and the Stadium Just Said, Nah. The old home of the Detroit Lions will die another day."
After the bears failed last week once again to implode the stock market rally, this time with a false ABC News story, I think the headline that could best sum up the naysayers' efforts in the stock market would be: "They tried to implode the stock market rally and the market said, Nah. The stock market rally will die another day."
The stock market did continue to rally for the most part last week. New high-water marks were set for the Dow (NYSEARCA:DIA), S&P 500 (NYSEARCA:SPY), and Russell 2000 (NYSEARCA:IWM). The result, as reported by the Bespoke Investment Group, "the S&P 500 is in its second-longest bull market, the 10th longest streak without a 10% correction, the fourth longest run without a 5% decline, and the longest rally without even a 3% decline on record."
The lone exception in the U.S. stock market was the Nasdaq (NASDAQ:QQQ), both the Composite and the 100 version, which ended the week slightly lower. However, in the past during this bull market, when the Nasdaq has mirrored a rise in the other domestic markets, the Index has recouped its comparative losses and outperformed.
Joining the Nasdaq in its move lower were bonds and international stock issues. Both declines probably related to the increasing probabilities of a lowering of taxes in the U.S. The former appears due to the increased likelihood of an enlarged supply of government debt to finance, at least in the short run, an increased deficit due to the tax cuts.
The latter seems to be a natural result of any cut in corporate taxes making the U.S. much more competitive versus its international neighbors. While the fall in bonds seems likely to continue given the increased growth in the economy and the Federal Reserve's policy intentions to lift interest rates (making Tactical Fixed Income strategies that can take advantage of rising interest rates attractive), I think the decline in international stock prices is an opportunity to buy into international and emerging markets strategies.
Still, it cannot be denied that U.S. stocks have been strong of late. In fact, they have been so strong that a short-term decline or flat period seems likely.
As the chart shows, the S&P has moved into overbought territory. It has simply moved up too far and too fast. While such an occurrence often results in a short-term pullback, I think it would take a move below the 200-day moving average (about 2,400), or at least its bull market trend line at 2,450, before much concern is warranted. Still, on average over the long-term history of the stock market, the December pause that is scheduled to begin this week is well-documented.
Even though the stock market has already had an incredible run - breaking the Dow Jones Industrial Average thousand-point move break point six times since last year's election as it moved first above the 19,000 level last year and 24,000 last week - I believe the possible market correction will only be a pause because the economic reports remain strong (13 out of the 23 reports this week were better than expected). Initial jobless claims (nonseasonally adjusted) were reported to be the lowest since 1968. Recessionary warning signals are nowhere to be found among the usual superior indicators.
The just-completed earnings reporting season was strong. Stocks reported double-digit gains in earnings on average. And earnings and revenue surprises continued steadily at fairly high levels.
In addition, investors still refuse to acknowledge that stocks are in a bull market. Bullish sentiment among small investors remains low and falling, while the bears are in an opposite state. From a contrarian point of view, stocks are better poised for future gains than for big losses.
Yes, the Silverdome and the bull market are still standing today (although, as I was finishing this up, the sound of multiple explosions rocked my home office). While the Silverdome may yet be gone this year, it appears that the eight-year bull market will survive the turn of the calendar, and that it is likely to have much longer to run before its days are over.
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