Market Update
In spite of geopolitical tensions with North Korea, economic and market data continues to provide solid evidence that investors should remain in the bullish camp.
Our facts based investment process continues to say that investors should stay the course. As long as stock participation (breadth), recession forecasts, and Federal Reserve policy present data that is supportive to investors, then you should have a full allocation to stocks.
Stock participation (Breadth):
We want to see more stocks going higher in relationship to stocks going lower. When only a few stocks are pushing the markets higher, it is a sign of weakness and not strength. While this indicator was weaker the last few weeks, it continues to support the bull market.
Recession Forecast:
In general, our investment methodology is based on market facts, observation and not on future forecasts. The biggest risk to our money over the long-term is from an economic recession (i.e. — 2000-2003 and 2008).
For this reason, we utilize a recession forecasting service in an attempt to give us early warning of a pending recession. Currently, we face a low threat of recession in the months ahead.
Federal Reserve Policy:
There is an old saying in the stock market that, “Bull markets do not die of old age, but rather they are killed by the Federal Reserve.”
When the US economy starts to grow at a rapid pace, the Federal Reserve often increases interest rates to help keep inflation risks down and slow down the growth.
Currently, the US Federal Reserve, as well as other central banks around the world offer favorable interest rate policies. As long as this remains true, it provides a favorable backdrop for investing in stocks.
Strategy:
With both technical and fundamental evidence supporting the bullish camp at this point, investors should stay invested. If we do experience weakness, it is likely to be more opportunity than a risk for now.
At some point in the future, the facts will change, but they have not changed yet. Remember, in past bull markets, some of the biggest gains come in the final months.
As always, when the market facts change, so shall we!
That’s all for this week friends.
For anyone in the path of Hurricane Irma, or cleaning up from Harvey, stay safe!
Sincerely,
Kern
