New Highs

The stock market has powered on to new highs almost every day since mid-September.    But then its quest for new highs has actually been occurring now almost from the moment Mr. Trump was elected President last year.  It is almost as if some invisible hand has been pulling it upwards.  This move higher has confounded the bears and frustrated traders.  The bears are confused because they see dysfunction in Washington, the situation in Korea, higher market valuations and the President's own bombastic personality as headwinds.  Traders are frustrated by the disappearance of volatility.  Stocks don't correct anymore, at least not in a way that allows them to profit from price declines.  Being short this market in 2017 has been a loser's game.  You have to go back months to find a day when the market corrected by over one percent.  

The reality of the situation though is that economic growth beats out all these other concerns.   For years the US economy limped along with subpar GDP growth.  It was something like 1.6% in all of 2016.  Preliminary reads of 2nd quarter US GDP growth this year were 3%.  That's long been pegged by economist as the magic number that leads to the kind of growth that creates jobs and grows wages.  Sure enough that seems to be happening.  For the first time in years as I look around, not just where I live and work, but in other places when I travel I'm seeing help wanted signs in windows.  Companies are also raising wages often ahead of minimum wage movements in states and local economies.  Some of this reflects a changing view of how employees perform in the market place but it also reflects a reality that's starting to seep into the economic discussion that the job market has become tighter.  Then again, with unemployment under 5% that should be expected.  Higher economic growth means more money for consumers to spend and they're doing just that, even if it's not in traditional ways we've all grown accustomed to.  Malls may be hurting for customers but on-line companies are growing like weeds.  Amazon's growing so fast it's scouring the continent looking for a place to build a second headquarters.  

Now look, stocks aren't going to go higher forever and even in a bull market we'll eventually experience a correction again.  Also a situation like Korea could flair up, it seems overnight,  into something potentially catastrophic.   Assuming that doesn't occur and assuming economic growth continues at something close to the same pace we've seen then longer term conditions are supportive of equities.  Yes, we'll have corrections and yes, at some point volatility will return but for now higher economic growth and corresponding higher earnings out of companies is trumping everything else.

*Amazon is a component of several different ETFs we own in personal and client accounts although conditions can change at any time without notice.