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How Much Longer for the Goldilocks Market?

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Friday, September 21, 2018

With basically a week left in calendar Q3 2018 (and a precious two days of summer left), we are seeing a commanding performance from stock market bulls — pushing to all-time record highs on both the Dow 30 and S&P 500 indexes. This having come without a plethora of economic data for analysts to gnaw on since the epically impressive non-farm labor report two weeks ago today.

That positive sentiment is so apparent with so few data points to mull over of late, it’s abundantly clear that bull-market spirits are not dying of old age. We’re told they never do, but close to 10 years on of bullish trading, we’re not really even seeing much slowing down. So — like we’ve seen in recent jobless claims numbers plummeting near 200K, which many analysts previously considered improbable, at least — we currently exist in a trading environment that defies expectations, if not beliefs.

Investors who’ve been around the block a few times — through the mortgage debt crisis which led to the Great Recession, through the tech bubble after the turn of the Millennium, through the S&L scandal of the early ‘90s, the crash of ’87, etc. — tend to look for something around the corner that threatens to stick a pin in this ever-expanding balloon. It’s not a matter of pessimism, but of responsible self-preservation. Get burned enough times, you tend to stop playing around with fire.

Yet with computer algorithms taking over the lion’s share of day-to-day, moment-to-moment stock and fund trading, no such fears exist. These trading instruments have been trained to sail forth into the abyss and pick up what value and momentum there is to be had. There doesn’t even need for any particular industry expertise — a buy is a buy is a buy. So whether it’s bitcoin a year ago, A.I. technologies earlier this year or marijuana growth now, we continually see rampant positivity eclipsing all other considerations in the modern stock market. Hence the record highs.

When Canada officially legalizes marijuana for personal (not purely medical) use next month, for example, this will be a game-changer for an industry whose principle product is still considered a Schedule 1 narcotic by the U.S. federal government. This is what has led to the miraculous rise — and frightening volatility — for companies like Tilray (TLRY - Free Report) , about which you can read here, here and here. But with such stratospheric bidding up of stocks like Tilray, Cronos (CGC - Free Report) and others, we might expect that the gains to be had in this space are happening four weeks in advance of Canada’s move, or have already happened.

As far as headwinds that may impact the market in the future, certainly Hurricane Florence, and her subsequent record flooding in some parts of the coastal Carolinas, will have a negative impact on that region’s economy, including its labor market. Thus, we may see a hit to jobless claims for the next few Thursdays and likely the next non-farm payroll report. Yet as we’ve seen in past hurricane seasons, these situations are temporary within the rapid flow of such a robust economy.

Everything else that may put this bull-run in jeopardy looks to be further down the road: unless the trade war between the U.S. and China goes perfectly, we may expect some pockets of pain within U.S. industry regarding trade; and if the U.S. continues to decouple from the rest of the global marketplace then we will take a hit regarding competitiveness due to the steep prices it will cost to do business here. Otherwise, for the time being, feel free to sit back and be carefree as an algorithmical stock-trading robot.

Mark Vickery
Senior Editor

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