Economic Insights - May 2019

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Economic Insights - May 2019 LoadingADD TO FAVORITES

Through the first week of May, the S&P 500 was up 17+ percent year-to-date. In April, the “average S&P 500 stock” was up 3.54 percent and was up 18.46 percent year-to-date. The Nasdaq Composite hit a new high and was up 23 percent year-to-date. For reference the Business Briefings PARE-5 strategy was up 39 percent year-to-date. 

In most circles those lofty numbers sparked caution and talk of a pullback. That set the market up for a pull-back on word that the Chinese were balking at U.S. trade demands. Trump’s intention is to impose 25 percent tariffs on most Chinese goods unless China is willing to eliminate “unfair trade practices” identified by the U.S.

But escalation of the trade war is not the only risk factor out there. Since the beginning of the Bull market there have been many theories and strategies bandied about by both the Bulls and the Bears. One consistent theme since the beginning of this bull market, has been to blame almost everything on the Fed. The old cliché remains: “The Fed has artificially pumped up the market.”  The S&P is up 220+ percent since quantitative easing was introduced in November 2008 and the index is up 87+ percent since the breakout in March 2013 that launched this Secular Bull Market.

As long-term subscribers know each new bearish theory has proven itself wrong. As we’ve seen, the only way to get it right is to watch all of the data, including the price action.

Understandably, those who have sat out this bull market need to blame someone, and they need a continuing rationale to sit on the side-lines. One of the few such arguments that is left is the notion that this boom is “all about Fed policy and the stock market can’t be trusted.”

However, that argument is getting untenable. As you know, quantitative tightening came along in 2018, and with it came the “Death Knell for the Bull Market” headlines.
Specifically, S&P reached another new all-time high in October of 2018. Then, the Q4 stock market debacle that followed; emboldened the Fed-obsessed crowd. They believed they were vindicated and correct in their theories. But the rapid recovery to new highs has called that argument into doubt.

So, we need to consider the other reasons...

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