The trend is still our friend

Posted by on Sep 1, 2014

Welcome to the very highest the US stock market has ever been…an event which took place in the best August in 14 years!

(Both of those refer to the S&P500, the index more representative of the stock market than the Dow. In any case, the Dow closed Friday within about 50 points of creating its own new all-time high…)

According to those fine S&P folk, this current high represents the 114th time a new high has been set by the S&P500 from the lows in March, 2009.

Having passed 2000 seems somehow more significant than moving past 1900, doesn’t it? In addition to self-congratulations to us for having been part of that ride, I suggest you use this as a reference point to consider how having made it here makes you feel about your investment strategy and perhaps lessons you’ve learned so far. And, perhaps look back to consider how being up so (relatively) high makes you feel about where you are now…

Those lows seem a long way away, don’t they?

Having done some of that self-analysis of where you are now, fiscally and mentally, where do you fit? For instance, are you energized and wondering what combination of things will help the markets move higher? Maybe you feel like you worked really hard to get here and just want to rest a while. Or, you never thought you could make it this high and are now more and more concerned of falling way back toward where you’ve come from. Some of each, perhaps???

It would appear that David Tice and Abagail Doolittle certainly would vote for choice C.

In comments this past week, Mr. Tice, founder of the Prudent Bear Fund, warned us that we’re due for an “imminent crash”. He said it would result in a drop ranging from “30% to 60% down”. Ms. Doolittle, founder of Peak Theories Research, said there could be a “scary 50% to 60% market correction”. For the record, while for different reasons, each lay the fault on the Fed…

I sure don’t share any of their dramatic concern for the market in a foreseeable future. Whether you share their views or mine, or wherever you are on those feeling levels, let me pass on to you some information from this past week you can use to help decide how to act with more confidence.

The virtuous cycle

This cycle is one in which the economists define as improvement in one part of the economy feeding into others. This then creates a self-sustaining expansion.

For a number of years in the recovery, we’ve been seeing bits and pieces of strength in the economy as different sectors, market and geographical, came back at different rates. However, now I think we’ve moved on to seeing this virtuous cycle expanding throughout the economy.

A big picture example of this was shown in the durable goods numbers that came out this past week. Durable goods – the sector is considered as representing business investment – are big ticket items meant to last more than 3 years. Chief among these kinds of things are cars, computers and aircraft, aka, Boeing.

The Commerce Department, reporting the data for this July, said that order bookings had the biggest monthly increase ever, due primarily to the fact that Boeing picked up orders for over 300 new aircraft at the Farnborough Air Show in England. Durable goods orders, even without the big push from Boeing, have continued to rise, indicating growing strength nationally.

Let’s consider Boeing as its own virtuous cycle.  Think of how many companies in different states and countries that will be needed for everything required to build all these planes – plus the huge backlog that now exists ahead of them. Won’t they be hiring lots of folks? So, it’s not just for manufacturing. They’ll need all kinds of services to support the people they’ll be hiring and to coordinate their efforts.

And it’s not just Boeing…this cycle is repeated throughout the supply and support networks of each of Boeing’s suppliers, regardless of that company’s size, and on it goes.

About the GDP

The bigger news from the Commerce Department this week had the second revision (the last one is in a month) of the GDP figures for the second quarter. It showed great growth of 4.2%, even better than the 4% first projected. A lot of economists had been expecting it to come in lower. And, as part of that report, corporate profits are also now at record highs.

Further, the Chicago Fed said this week that, in July, the economy grew at a rate above the historic trend. Suggests to me that the pent-up demand from the first quarter, together with new growth, is helping this virtual cycle ripple effect.


Remember, making record, all-time, best ever highs doesn’t mean they can’t eventually go even much higher still. According to market technician Ryan Detrick, new highs actually “tend to happen in clusters that can last years.”

If you have a well-allocated asset allocation strategy for all your goals, then the short-term flips and slips of the markets are just background noise.




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Past performance is not indicative of future returns.

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