I spent a nice long weekend in Philadelphia. I caught the University of Pennsylvania (that’s not Penn State)-Columbia basketball game (Penn won) at The Palestra with my Pi Kappa Alpha grand big brother Steve who just relocated back to Philadelphia. Then I spent a few days with my uncle (technically my first cousin twice removed). We saw an excellent movie, The Salesman one evening. I have to be honest; I barely thought about the financial markets for several days.
Earnings season is drawing to a close. All earnings season metrics were positive by a wide margin for the first time in many years, Earnings growth, companies bettering earnings consensus expectations, and the market’s response to earnings all confirmed that the equity markets are in the midst of a bull run.
If you look at the proxy for the market, the Standard & Poor’s 500 (SPX), we are experiencing classic bull market movement. Grizzled market veterans (I guess I can be counted now as one of them) often say that in bull markets, stocks climb on an escalator and fall in an elevator. In other words, markets slowly ascend to higher levels and then on occasion will retrace (or correct) that movement with quick unexpected drops. Right now we are on the escalator, thanks to rising year-over-year earnings growth.
What will cause the downdrafts in the markets during a bullish run typically are some events that come out of left field. It could be some comment from a Fed official. It might be some errant economic data point, which is inconsistent with the general economic trend. It could be some geopolitical issue or perhaps a terrorist attack. These all tend to be short lived and then markets get back on the escalator.
Today, Fed Chair Janet Yellen will begin her semi-annual testimony before Congress. Us market greybeards know this as the Humphrey-Hawkins testimony. That could be the source of an innocuous comment that could trigger a temporary market reversal, but don’t bet on it. Overnight futures are flat.
There will be a counter cyclical correction of 5 – 10%. I just don’t know when or from what level it will begin. If you do, please let me know the exact time and level from which it occurs. I will say that as this market rises; so has skepticism. For a short term market top to occur, we need that skepticism to turn to enthusiasm. In the meantime, enjoy the escalator ride.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long SSO, SPXL— although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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