The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Bonds closed.
The US Treasury market was closed due to Veterans Day. Capital flow in US equity markets was very low as a result, 85%. Equity markets moved around a bit but not too much. The S&P opened a bit lower but turned positive by lunch, a pretty typical pattern. The bulls are front-running the reopening of the government as well as the economic data releases that will result.
It remains to be seen whether the coming economic data will support the bull case or refute it. Consensus opinion is that the economy is rolling along at a good-enough pace (2-3%) and that inflation is low enough (3%) and that employment is good enough (0-50 k jobs per month). This is basically where we left off the last time the data was officially published. The Street is essentially extrapolating from the past. And without firework headlines, there’s a strong case to be made that nothing has veered the economy off the prior path.
It's a very reasonable view, a view I share, but I wonder if it *should* inspire bullishness. It is highly likely that US equities rally as we get the back-dated economic releases. The continuation theme of the bull market is strongly rooted in investor psychology. As long as nothing upsets the applecart, investors are going to lift offers into year-end. This behavior certainly isn’t justified by valuations. It is justified by the continuation of GDP growth and earnings growth.
Whether valuations and the coming growth agree or conflict is sadly besides the point. Valuation adjustment only ever really happens in-the-face-of contraction. The long side of this is a game of musical chairs. The music will continue to play as long as growth continues.
How much longer have we got? Bulls think it’s years. Bears think the music already stopped.
See you tomorrow.
-Mike
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