Morning Market Thoughts

Good morning! S&P Futures are up 4 this morning on a really strong jobs report released by ADP, showing that the private sector added 263,000 jobs last month. That’s a pretty strong number, and it gives the bulls more ammo for pushing stocks to a new high for the month, and above last quarter’s close.

I was talking last night about the Wall of Worry. To recap, the market does not move higher in a wave of exhilaration. The wave of exhilaration does not appear until the very top. The crest of the wave marks the top of the market, when everyone who follows the market (and indeed, even those who do NOT follow the market) is exuberant about stocks. Yes, even folks who have never cared about stocks are suddenly opening up trading accounts and buying stocks. Maybe they’re even trying their hand at day trading. But they are more than willing to talk about the brand new iPhone that’s going to change the world because everyone on the planet is going to want one. Or they’ll talk about how Amazon is going to be flying drones in orbit around the world, stuffed with popcorn, pizza and TVs, which will be parachuted down to anywhere in the world on Super Bowl Sunday, just in time for the game. The stock’s gonna go to Pluto!

Yes, they’ll all have their favorite stocks. And when you start hearing about them, you need to start easing yourself toward the door. It’s time to grab your coat and car keys. (And if you’ve had a bit too much adult beverage, don’t stick around for Uber. Just walk home).

Well, we’re not there yet. I believe that the Wall of Worry is going to last for quite a while. One of the reasons that is not really being discussed is Donald Trump. (This is not a political note; it’s note about the Wall of Worry.)

I understand that there is still some optimism that he’s going to cut taxes, spend a trillion bucks, and cut regulations down to scribblings on a cocktail napkin. Those are all reasons to be invested because they are easier on businesses. But what about the pessimism that he’s going to be able to do none of those things? There are plenty of “Never Trump” types on Wall Street. And their pessimism must be influencing their investment decisions. How could it be otherwise?

So my theory is that, as long as POTUS struggles to get things done, the pessimism will remain a force in the market. And let’s face it — he’s always going to be struggling to get things done. So this pessimism is likely to last for an indefinite period of time; and I can’t imagine the scenario where investors reach an irrational level of exuberance. So the market goes higher.

This rally won’t be without corrections. I’m sure we’ll see 5-10% corrections along the way. Sadly, markets never go up in a straight line. (If the market does start going parabolic, see my above comments about walking home rather than waiting for Uber).

I’ve recently noted that breadth is narrowing a bit, which is a cause for concern. That’s a brick in the wall. One Dum Sun, the fat guy in North Korea, could always spoil the party by lobbing an ICBM our way, but that’s certainly not something to consider when making investment decisions. Trust me. If that ever happens, you’ll have more important considerations than your trading account.

So stay focused on transcending the Wall of Worry. Start viewing any negative sentiment or news flow as merely information. And you parse that information with what’s happening in the market. As long as the trend is intact, then you know that the negative headlines or data are being absorbed by investors. Those who have taken money off the table will ultimately put it back in. And they’ll put it back in if the market pulls back a bit, which lends support to the pullback. And they’ll also put it back in if the market looks like it’s running away from them. Their chasing is actually fuel that’s being added to the fire, pushing stocks higher still.

Make sure you understand this dynamic in the investing and trading world. At some point, the bull market is going to end. But from where I stand, I don’t see it on the horizon. I just know that it’s out there somewhere.

See you in the forum.

–Dan

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