Why is the Market Going Up?
By: Cameron Diehl, CFP®
Friends – A common question lately has been: “How can markets continue to move higher despite all of the negative headlines?”
To try and answer that question, I asked Andrew Adams, CFA, CMT, Senior Research Associate and member of Raymond James’ Investment Strategy Committee what he thought was driving markets higher. The following bullets are excerpted from his response:
- A strong economy and corporate earnings - The stock market, more than anything else, is driven by the economy and corporate earnings – both of which are objectively stronger now than they’ve been in years. This helps insulate the market from a lot of the negativity. Related, much of the “bad” news has little to no material impact on the economy or company earnings. Just because the media discusses something does not mean it’s important.
- Consumer strength - 68% of U.S. GDP is consumer spending, and consumers are currently in the best shape they’ve been in a long time. Confidence is high, wages continue to rise, and people are spending money. People don’t stop spending money because of headlines; they stop spending money when their incomes go down and/or they don’t have access to credit.
- There is always something to worry about - Secular bull markets climb a wall of worry. There is NEVER a time when there is nothing to worry about, yet over the last 120 years the market has pushed higher despite every negative event that has come along, including two World Wars, the Great Depression, the Financial Crisis, etc.. Over time, the stock market goes up because the U.S. economy expands and company earnings grow.
- Conditions are still improving - The market doesn’t care about the absolutes of “good” or “bad”; it cares whether, on balance, things are getting better or worse and from an economic and earnings standpoint things continue to get better and the market will likely continue rising until the balance of evidence suggests things are getting worse.
The point of this note is not to try and predict where markets will go from here. No one can say with any certainty what the future will hold, especially over the short-to-intermediate term, and timing the markets is incredibly difficult, if not impossible. What we can do, however, is focus on underlying fundamentals to understand where we are and use history as our guide to anticipate how markets are likely to perform over extremely long periods of time. We can then make investment decisions that are grounded in this long-term perspective and tied to your goals and your life – not headlines.
As always, if you would like to discuss anything covered above, please don’t hesitate to call or email me. I’m always happy to help.
Disclosure: Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.
