The Bullish Case

Posted by on March 9, 2017 1:02 pm
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With stock valuations hitting record levels, it is incredibly hard for prudent investors to remain bullish. Let's review two possible cases for the stock market to continue its run.

David Tepper has a clear reason why the stock market’s ‘Trump rally’ has room to run

Hedge-fund billionaire David Tepper says it is hard to bet against a rally in stocks that has been underpinned by President Donald Trump’s three-pronged campaign promises of deregulation, tax cuts and increased infrastructure spending.

“It is hard to go short when you say…when the punch bowl’s still full,” he told CNBC during a Wednesday morning interview.

“I don’t think the market’s cheap by any stretch…but look at the backdrop around the world…with the sugar that is still being put on by the [European Central Bank], the Bank of Japan…you can’t be short in that kinda set up,” he said. Tepper is referring to quantitative-easing measures that are still in use in the eurozone and Japan.

Fair enough. A view that quite a few people on Wall Street share. Of the "Three Pillars" David mentions, tax cut is the most important. It is possible, even likely, that the stock market is mispricing this one. As was outlined here. MUST WATCH: Why Trump’s Tax Plan Is Dead On Arrival

The rest of it is straight forward. Mr. Tepper agrees that stocks are expensive, but suggests you keep buying because of monetary easing around the world. If this is not equivalent to playing the game of musical chairs, I don't know what is. I will leave it at that.

Stocks are doing something they haven't done since 1994

The S&P 500 just posted its 100th consecutive trading day without a decline of 1 percent or more, its longest-such streak since 1994, according to Paul Hickey of Bespoke Investment Group. But as he points out, that shouldn't deter investors from buying stocks.

"I don't think that it is necessarily a cause for concern, but investors should be aware that this lack of volatility is extremely uncommon, so they should expect to see volatility start to increase going forward, especially with the Fed poised to hike rates at a more consistent pace," Hickey told CNBC Tuesday.

"If there is to be a pullback — a 1 percent drawdown in the market — we want to be buying the dips."

BTFD - always. The 1994 trading range ended with a stock market breaking out and embarking on a 5 year blow off stage of the bull market. Is it possible the market is setting up to repeat the process? While anything is possible, earnings are unlikely to increase going forward. That implies multiple expansion and an eventual crash. Hardly a bullish case to get behind.

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