Thoughts {04.19.16}

Stocks have started the day slightly higher.  Right now the markets have advanced nearly 16% since their lows back in February.  Investors search for a reason.  One could throw out all sorts of theories.  If I had to take a stab as to why we've been moving higher I'd cite the following:  

Market's became too negative versus actual economic activity.  Look it's no secret the US economy isn't growing like Topsy but it is growing.  Our real growth rate is likely higher than what we see because I'm convinced we don't have the tools to accurately measure the modern economy.   I've discussed this before but to use as an example, I'm not sure we know how to measure the cumulative effect of the woman, be it a house wife or somebody who's in the work force, that at night sits in front of her TV knitting or making jewelry which she then sells on Etsy.  I personally know two people who do just what I've described.  Their profits may be modest but the cumulative effect of this must run into the millions of dollars.  

Earnings estimates have rolled out now to the 2nd quarter of 2016 and for the first time in about a year we're seeing rising earnings estimates out in that period.  The gains are modest but they are gains.  It doesn't make the markets PE shrink much right now but the correlation between rising stock prices and rising earnings is an historically proven event and that has undoubtedly helped at least with market sentiment.

Rising oil prices.

Accommodative Federal Reserve.

Or it could be something we don't know about.  What is for sure is that just when markets looked like they had given up the ghost last winter, they turned the other way.  Now with stocks having erased all of their early 2016 losses what will the markets do?  Nobody knows for sure.  Even all of the glib voices you hear on TV or radio {and there are more of them now with stocks in the green} don't have an answer to this.  For all of the reasons I've given why maybe the markets have gone up, I could throw out a statistic that says they should be going down.  At some point those statistics will matter.  Right now it seems they do not. 

The route we choose when managing client's assets is a probabilistic and systemic assessment of our indicators.  We let them be our guide.  It is not a perfect system because there are no perfect ways to look into the future, but they have served us well in the past and we trust them as we sail each day into uncharted waters.

*Etsy is likely a portfolio holding of certain ETFs we own in client and personal accounts.  We do not follow Etsy's stock and have no opinion of the company or idea of what its stock might do.  Positions can change at any time without notice.