The Big Debate: Ritholtz On Why Stocks Could Go Higher.
Barry Ritholtz over at the Big Picture on why stocks could go higher. {Excerpt} Highlights mine.
....However, none of the various metrics we track suggest the rally is about to run out of gas anytime soon. That doesn’t mean it can’t end tomorrow, but we would rather play the high rather than low probability outcomes.Here are 5 most reasons why I think we can have more upside, plus a look at some grim economic reality.
1) Individual investors remain under-invested (See Liquidity/Sentiment Review).
2) Market Breadth and momentum are each positive (i.e., supportive of further upside);
3) Sentiment has not (yet) reached extreme levels;4) The broader investment community believes — incorrectly in my opinion — that a recovery is upon us, profits are getting better.
5) History shows that secular bear markets have deep selloffs and huge rallies; this current rally still has room to run based upon a composite of prior cycles (See Four Stages of Secular Bear Markets).
Now, about that economy. Here is my dirty little secret: FOR ~TWO/THIRDS OF THE TIME, THE ECONOMY REALLY DOES NOT MATTER.I know that sounds insane, but consider the following: In the middle of secular bull markets, economic info seems to have the greatest correlation with market performance. Good data, more profits, better market action.
At market tops, the economy looks great. Valuations are rich, but record profits support the multiple.
Then it all goes to hell.
At bottoms, it looks awful. It looks like these companies will never make another dime, that layoffs won’t ever end, that we can never escape the tar pit.
And then we do.
This must be perplexing, maddening, infuriating to pure economists. But that is Mr.Market’s job — to frustrate the maximum number of players . . .
1) Individual investors remain under-invested (See Liquidity/Sentiment Review).
2) Market Breadth and momentum are each positive (i.e., supportive of further upside);
3) Sentiment has not (yet) reached extreme levels;4) The broader investment community believes — incorrectly in my opinion — that a recovery is upon us, profits are getting better.
5) History shows that secular bear markets have deep selloffs and huge rallies; this current rally still has room to run based upon a composite of prior cycles (See Four Stages of Secular Bear Markets).
Now, about that economy. Here is my dirty little secret: FOR ~TWO/THIRDS OF THE TIME, THE ECONOMY REALLY DOES NOT MATTER.I know that sounds insane, but consider the following: In the middle of secular bull markets, economic info seems to have the greatest correlation with market performance. Good data, more profits, better market action.
At market tops, the economy looks great. Valuations are rich, but record profits support the multiple.
Then it all goes to hell.
At bottoms, it looks awful. It looks like these companies will never make another dime, that layoffs won’t ever end, that we can never escape the tar pit.
And then we do.
This must be perplexing, maddening, infuriating to pure economists. But that is Mr.Market’s job — to frustrate the maximum number of players . . .
posted by CR English at 6:49 AM
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