Home About Archives RSS Feed

@theMarket: Look! Up in the Sky! It's a Bird ... It's a Plane ... It's the Stock market!

By Bill SchmickiBerkshires columnist
The Dow Jones Industrial Average gained a thousand points in a month. In just the first three days of 2018, all three U.S. averages hit consecutive record highs. Overseas indexes did even better.
 
Japan, for example, was up more than 3 percent on its first trading day of the year. Emerging markets continue to make new highs, while European bourses continue to climb. Those who expected the markets to tank in the New Year have thus far been wrong. How long can this last?
 
Short sellers, convinced that stocks just have to come down, bet on a market decline and have had their head handed to them on a daily basis. Undeterred, they point to the "overbought" indicators that have been flashing red for weeks now. Investor sentiment numbers continue to climb to nose-bleed levels as well, which is usually a contrary indicator. Still, the markets climb higher.
 
There is an old saying among traders that "the markets can remain irrational, longer than you can remain solvent." It is something that all investors should not forget. We are experiencing a melt-up and if one is on the bull train, remain on it. If, on the other hand, you still have that yearly cash bonus, practice a little patience. There will come a time when you can put that new money to work, just not quite yet.
 
We are in a period of goldilocks-type conditions that one rarely sees in the stock market. We have low, even historically low, interest rates given the growth rate of the global economy. Negative interest rates in a large part of the world are coupled with accelerating growth. At the same time, the U.S. economy, which has been growing moderately, may now get a new burst of energy thanks to the newly-passed tax reform. If our Twitterer-in- Chief is correct, the $1.5 trillion in tax cuts for one and all will create a robust environment for additional consumer spending as well as capital investment.
 
The U.S. could therefore act as a speeding locomotive pulling the rest of the world's economies along at an ever-increasing rate. It is similar to what happened back in the early 2000s when China's economy exploded. Almost every nation on earth benefited from that economic miracle. Some think this could happen again, only this time to the U.S., under the Trump presidency.
 
Maybe a simpler answer for today's market gains lies in the fact that we are entering a new stage of the market's emotional cycle. We call it the optimistic stage, where prices rise as new capital is put to work by current market players, as well as by new market participants, who have been on the sidelines.
 
It is difficult to predict the length of this phase (if it has truly begun) because it is dependent upon the success of that invested capital, as well as the time required to generate a positive rate of return for this risk capital.
 
One highly-respected, gray-haired sage of stock markets I respect is Jeremy Grantham, founder and chief Investment officer of Boston-based Grantham Mayo Van Otterloo. In his company's latest investment letter, Grantham believes we are currently showing signs of entering the blow-off or melt-up phase of this bull market.
 
"I recognize on one hand that this is one of the highest-priced markets in U.S. history, he writes. "On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market."
 
He adds that the end of this phase could take anywhere from another six months to two years to complete before all is said and done. Before we do, we should expect the final emotional stage of the market to unfold. That is when euphoria takes over and stock prices reach their zenith. Parabolic price gains become the norm and a false feeling of well-being occupies the investor psyche. But don't worry, I see no signs of this occurring as of yet. So enjoy your gains and expect more in the future.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Clark Art Screens 'Adaptation'
Drury High School to Host End-of-Year Showcase
Clarksburg Gets 3 Years of Free Cash Certified
Pittsfield CPA Committee Funds Half of FY24 Requests
MCLA Men's Lacrosse Falls in League Opener
Letter: Vote for Someone Other Than Trump
Berkshire Art Center's Dance Party Returns
Dalton Committee Seeks Funding for Invasive Species
Dog Daycare Planned for Former Williamstown Restaurant Site
Simon's Rock Awarded Freedom to Read Grant
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (183)
Archives:
March 2024 (5)
March 2023 (2)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Employment Greece Taxes Europe Stimulus Energy Europe Crisis Selloff Bailout Banks Banking Interest Rates Markets Euro Pullback Rally Metals Jobs Retirement Commodities Deficit Japan Federal Reserve Stocks Economy Fiscal Cliff Recession Oil Election Congress Stock Market Currency Debt Ceiling Debt
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising
@theMarket: Melt-up in Markets Fueled by Momentum