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Market Commentary

SEPTEMBER 2018

 

 

As summer comes to end and kids head back to school, the stock market passed a major milestone this August. While much of the media were concentrating on other headlines, the S&P 500 Index moved past all-time highs and this bull market officially became the longest in history. I wonder how many of us would have thought the market would go on a 10-year run following the financial crisis. I know we don’t remember many calling for that to happen. Well, it did happen and now the task is to figure out what comes next.

 

As has been the case for the entire year, the economy is going strong. Retail sales advanced 0.4%, the payroll report showed gains of 201,000 jobs, and the most recent Gross Domestic Product (GDP) print shows a gain of 4.2%. These numbers are excellent, and the economy shows no signs of letting up. However, as students of the financial markets, we know that the economy looked great in early 2007 and 1999 as well. The point being that after a long bull run, when the market changes its perception of what is coming next, things will get dicey.

 

Our vote for the likely culprit of the next down market is inflation. Most bull markets are killed when things look great and then become a little too great as employers are forced to pay higher wages. This situation tends to spiral out of control and is the thing the Federal Reserve fears most. This is why the Fed has been slowly raising rates for the last year. They don’t want to go too fast or too high and risk choking off the economy, but they are even more worried about rapidly rising prices. For now, inflation is under control and doesn’t warrant extreme measures. However, it has been rising over the last few years and is something we need to keep an eye on.

 

Below we see a chart of the S&P 500 Index going back to 2012. We don’t see any problems yet as the trend continues. However, we would consider a breaking of the weekly trend line as a problem, but so far, we are not even close. So, while we know that the end of this bull is inevitable, we know that often the best gains are to be had near the end. We remain invested with a wary eye on measures of inflation for the near term. We will certainly let our readers know if things should change.

 

 

 

 

 

 

 

 

 

 


Disclaimer: Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of securities. Investments involve risk and are not guaranteed.