NEWS
What Happened Last Week
Of the 13% of S&P 500 companies that have already reported earnings, 82% have surpassed the earlier estimates.
Both US Presidential candidates have espoused a plan for economic growth. VP Harris’ plan is more based on demand-side economics, and former President Trump’s plan is based on supply-side economics.
Stock markets are apolitical. There is very little evidence that one party is better for the financial markets than another. Regardless of the outcome this November, markets are likely to hold up nicely in the absence of a sudden shock event.
The S&P 500 is well above its 50-day and 200-day moving averages.
Investing has become popular again, and high expectations have pushed prices higher according to the AAII Investor Sentiment Survey and Fear and Greed Index.
How I See It
Markets are excited right now.
We’re approaching the end of an election year, and people are eager for a change of power. This is very common that the second half of an election year is positive due to the reducing uncertainty around the outcome.
The S&P 500 was up 15.14% by mid-year (June 28), and it’s up a total of 22.5% as of mid-Monday.
Is this too much too fast?
Market return numbers alone can’t tell us the answer to this. In fact, 23% is very close to the average market return in a bull market year. It’s those bear markets that bring the average back down to around 9%-10% over the long-run.
And markets don’t revert to their average just for the sake of it.
However, market corrections can happen even in the midst of the overall uptrend. Dropping 10%-20% quickly is not uncommon, and it accompanies a lot of bad news from the media. But corrections usually recover just as quickly as they start.
We have a lot of positive things happening: falling interest rates, a change of government leadership, the advent of AI and changes in energy usage.
Of course, the negatives involve mainly the geopolitical risk around the world.
Another slight risk remains if there is a clean sweep of one party across the House, Senate and President, which can create temporary uncertainty due to greater potential changes in regulation.
But while investors remain optimistic, this doesn’t appear to be unusual for late-stage bull markets. And bull markets can run on high optimism for years, achieving some of their greatest returns of the cycle.
While there is always risk being invested in stock markets, remember that this bull market is only two years old, and the odds appear to favor a continued bull run (with volatility) for at least the next several months if not years.