We could sum it up in two words; Hot Money. However, for some strange reason when it comes to the markets individuals happen to love long explanations even though in most cases the long explanations reveal a lot less than the short ones do. Let’s look at a few things we do not pay attention to, but we know many investors do;
S&P 500 companies are going to report what will turn out to be the 6th consecutive quarter of lower earnings. Right off the bat logic tells you we were right when we said hot money. What else would keep this market trending higher? This is one of the longest earning slumps in over a decade.
The next logical assumption would be “well then there is no way stocks can keep rising” or how long can they rise in such an environment
To get the right answer, you need to ask the right question. Both issues are silly, and an answer to either one will not provide you with any further insights. One person will state it cannot rise because of the negative factors listed above. The other penguin will say it can rise because inflation is low, unemployment is low, gas prices are low and a host of other rubbish.
We are not going to take that route. The right question is when will central banks stop flooding the markets with money?
When hell freezes over is the answer; this means that this market will rise for much longer than most naysayers can stay solvent.
An even better question would be “what side of the market are the masses on.”
Now we are getting somewhere; the masses are decidedly negative, and that means until they embrace this market, it will not crash.
So there you have it. However, even this is not enough for many individuals. So let’s examine the reasons (even though we do not care about them) as to why earnings might be dropping.
Energy and other commodity based companies have seen their profits dive, and that is why these sectors have been the worst performing sectors for over 18 months.
There are a couple of more reasons. The first important point is that U.S. firms in the aggregate have reported lower earnings because energy, commodity and basic materials companies have seen their profits decimated by lower prices. The energy sector will once again lead the way with massive losses.
A strong dollar; the dollar has been in an uptrend, and this affects multinationals profits. This is simple to understand as we in the midst of a massive currency war; a strong dollar is not okay for multinationals and vice versa.
It also affects our exports as it makes our products more expensive overseas.
The only two things you need to pay attention to an extremely accommodative Fed and secondly the masses refuse to embrace this market. Both developments are extremely bullish for this market.
Data that is readily available to everyone is like news; the moment you hear it is no longer news but Gossip.
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