Right now stocks are full valued. Earnings growth is non-existent. Ditto for revenue growth. And GDP is sliding back from +3% to the Muddle Through 1-2% range.
Reity, are you saying that the next bear market is here?
Nope. I am just saying there are a lot of good arguments for stocks to pause and perhaps give back a little before advancing further.
You see, there is only one good argument for stocks to advance higher now given this backdrop. And that is things aren’t bad enough for a bear market. Typically you need signs of a recession or stocks being way overvalued like the late 1990’s for that to happen. Neither is the case now.
Simply think of the stock market as a helium balloon where going up is the most natural outcome. In that case you need a negative force to hold it down. But if you lose sight of that even for a second it will float back up again. That is what is happening now.
Until those negatives drift away, then play it for the range bound market it is. If the negatives do evaporate, then get ready for new highs. However, if the negatives grow stronger and increase the odds of future recession, then shorting stocks and using inverse ETFs will be the weapons of choice to produce stock market profits.
aka Steve Reitmeister
Executive Vice President, Zacks Investment Research