The S&P 500 eclipsed the 2,900 level, and the Nasdaq jumped over 8,000 this month - both all-new record highs. The Dow Jones Industrial Average also temporarily catapulted above 26,000 in August, but remains 2% shy of the January 2018 record highs. For the year, here are what the gains look like thus far:
- S&P 500: +5.3% (2,902)
- Nasdaq: +17.5% (8,110)
- Dow Jones Industrial: +5.0% (25,965)
For months, and even years, I have written how investors have underestimated the strength of this bull market, which has been driven by an incredible earnings growth, low interest rates, reasonable valuations, and a skeptical mass market of investors. As I pointed out in the article "Why the Masses Missed the 10-Year Bull Market," stock ownership has gone down during this massive quadrupling in the bull market. And many investors have missed the fruits of the bull market due to an over-focus on uncertain politics and scary headlines.
Nothing lasts forever, however, so another correction will likely be in the cards, just as we experienced this February when the S&P 500 index temporarily fell -18% from the January peak. But as I have highlighted previously, attempting to forecast or predict a correction is a "Fool's Errand." At Sidoxia, we implement a disciplined, systematic process to identify attractive investments through our proprietary S.H.G.R. model (see also "Holy Grail") and the four legs of our macroeconomic framework (earnings, interest rates, valuation, and investor sentiment - see "Follow the Stool"). With stock prices bouncing around near record highs, it is surprising to some that anxiety still remains elevated, primarily due to polarizing politics and an unfounded fear of an imminent recession.
Despite all the hand-wringing going on over political headlines, the fact remains the economic tailwinds have "trumped" any political concerns. After a strong Q2 GDP reading of +4.2%, according to numerous economists, Q3 is tracking for another healthy +3% gain. As the Leading & Coincident Indicator chart shows below, there currently is no sign of an imminent recession.
And jobs remain plentiful, in part because of Small Business Optimism (see chart below). It's common knowledge that small businesses generate the vast majority of new jobs, so these optimism levels hovering near 35-year highs augur well for future hiring, job growth, and investment.
The real economy, as measured by the shipment of goods, is trucking along as well (see the truck tonnage chart below).
(Source: Scott Grannis)
While all the positives above have been highlighted already, in the forefront has been an endless string of doomsday forecasts. Scott Grannis captured this sentiment in a six-year chart created by TradeNavigator.com (click here).
As we enter the tenth year of this bull stock market, politics remain polarizing and skepticism reigns supreme. However, until the storm clouds come rolling in, the economy keeps expanding and prices keep moving higher. If the trend continues, as has been the case in recent years, next month's title could be the same: "Another Month, Another Record."
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (September 4, 2018).
Disclosure: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.