More than 75% of Greek bondholders agreed to the swap nearly assuring that the deal will go through. That good news, in combination with yesterday’s strong ADP employment report, gave investors a reason to get back up to the old highs around 1370. However, we’ve been lingering around this spot for a few weeks.
What happens next???
Unfortunately the path ahead is not crystal clear. I see 3 potential outcomes for the stock market which I will share below (from most to least likely):
1) Melt Up to New Highs: The bull market has been running strong for a few months. But really the last month has been more of a slow melt up. Where over the course of a week there may be 3 up days and 2 down. Each week’s modest gain doesn’t look like much until you pull back to the big picture and find that it indeed is a breakout out to new highs. This would have us on course for 1400 by the end of March in time to see what earnings season has in store.
2) Consolidation: We have already come a long way in a short period of time. Perhaps investors can quickly forget the recent Greek tragedy and focus in on the surprising health of the US economy. In this case, the bull run stops here and plays in a 3% range (1330 to 1370) awaiting the results of earnings season in mid-April.
3) Rage Higher: Perhaps investors can quickly dispense of the recent Greek tragedy and focus in on the surprising health of the US economy. If so, then we rush up to new highs of around 1420. Then perhaps a modest consolidation before earnings season begins.
Again, I see #1 as most likely. The next step for you is to determine which scenario you believe in and then align your portfolio accordingly.
However, I bet there are many of you who are unsure of what will happen next. And are tired of chasing the ups and downs of this market. Instead you’d rather have an investment approach that helps you top the market while still being able to sleep soundly at night (no matter what Mr. Market is doing).
Best,
Steve Reitmeister
Executive VP, Zacks Investment Research
Pelias' views 