Thoughts {10.02.18}

Some things to think about as we start the fourth quarter of 2018.

There are certain headwinds now that the markets are trying to jib against.  Interest rates are rising. Plain and simple, this is a drag on the economy  Home prices are near all time highs {Although they appear to be softening in certain markets like New York now.}, oil now has the chatter about heading to 100 a barrel and wages are finally showing evidence of going up after years of stagnation. At some point this has to matter for the economy and corporate profits.  It's hard to tell thought if that's this quarter, next year or the year after.  Stocks in any event are facing events now they haven't seen in a very long time and it's hard to tell what they will make of all this.

Don't be so sure though that higher interest rates will be the thing that derails this market.  For one thing higher rates means more money in the accounts of savers as they are finally seeing some return on their money.  The other is that the US economy managed to expand for many years with rates significantly higher than what we are seeing now.  For many years 5-6% was the norm for 30 bond year rates.  Stocks and the economy managed to do well then and I see no reason why these should be the sole reason to knock it all down for the count.  A head wind yes.  TKO, probably not.

Finally on that issue of market leadership narrowing,  here's what David Rosenberg said over on his Twitter feed the other day, "The stock market is so robust that 17% of the SPX is down 20% or more from their 52-week highs; fully 43% is down at least 10%. What bull!" If you haven't been in certain parts of Tech, certain parts of aerospace or health care this year then it's likely been a bit of a rough sled.   Investors don't like narrowing markets so it's best to pay attention to this going forward.

*Long ETFs related to the S&P 500 in client and personal accounts.