As fate would have it, today was not the day that the S&P 500 closed at a new high. The index flirted with record levels much of the day -- only to close fractionally lower.
But, nearly everyone on Wall Street predicts the record close will happen any day now.
The big question is what happens after that.
Many analysts think the factors that have pushed the market higher -- strong corporate earnings, a healthy economy, and the possibility of an interest rate cut by the Federal Reserve -- will continue to do so.
Most technical analysts are also bullish. They say the mere act of shattering a record is a bullish sign. Many are also happy to see broad participation in the market rally. The Dow, the Wilshire 5000, the Russell 2000, for example, have already closed above their 2000 highs.
It’s also encouraging to see a new Standard & Poor’s study showing that over the past 65 years, on average, the S&P 500 has gained 5% in the 6 months following a new record.
Clearly, there’s no guarantee that will happen this time. Experts say what happens will likely depend on corporate earnings, inflation, and the Fed.
Personally, I get a little uneasy when Wall Street strategists seem to agree on the direction of the market. It’s getting hard to find someone to make the bearish case these days -- that the market is due for anything more than a small correction.
What’s your market outlook?
Comments
First, there is no ambiguity in forecasts. In contradistinction to Bernanke ; forecasts are mathematically "precise” (1) nominal GDP is measured by monetary flows (MVt); (2) “money” is the measure of liquidity; (3) income velocity is a contrived figure (fabricated); it’s the transactions velocity (bank debits, demand deposit turnover) that matters; & (4) the rates-of-change (roc’s) used by the Fed are specious (always at an annualized rate; which never coincides with an economic lag). The FOMC, the Fed’s research staff, etc., have all learned their catechisms;
Friedman became famous for using only half the equation, leaving his believers with the labor of Sisyphus.
The lags for monetary flows (MVt), i.e., real GDP and the deflator are exact, unvarying, constant --- 10 months and 24 months respectively. Roc’s (rates of change) in (MVt) are always measured with the same length of time as the economic lag (as its influence approaches its maximum impact; as demonstrated by a scatter plot diagram). Not surprisingly, adjusted member commercial bank “free” reserves (their roc’s) corroborate/mirror both of monetary flows’ (MVt) lags--- their lengths are identical.
The BEA uses quarterly accounting periods for real GDP and deflator. To improve reporting accuracy, the accounting periods for GDP should correspond to the economic lag, 10 months, and 24 months, not quarterly. Then, surprising revisions in the data would be eliminated, as would adjustments thereto monetary policy. GDP measurements should represent a rolling moving average.
Monetary policy objectives should not be in terms of any particular rate or range of growth of any monetary aggregate. Rather, policy should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real GDP. Note: roc’s in nominal GDP can serve as a proxy figure for roc’s in all transactions. Roc’s in real GDP have to be used, of course, as a policy standard.
Because of monopoly elements and other structural defects which raise costs and prices unnecessarily and inhibit downward price flexibility in our markets (housing being most notable), it is probably advisable to follow a monetary policy which will permit the roc in monetary flows to exceed the roc in real GDP by c. 2 percentage points. In other words, some inflation is inevitable given our present market structure and the commitment of the federal government to hold unemployment rates at tolerable levels.
Some people prefer the devil theory of inflation: “It’s all OPEC’s fault.” This approach ignores the fact that the evidence of inflation is represented by actual prices in the marketplace. The "administered" prices of OPEC would not be the "asked" prices were they not “validated” by (MVt). Grist for the Mill:
Yea for these, our sterling pieces, all of pure Athenian mold -- ARISTOPHANES, THE FROGS
Monetary flows (MVt) peaked Oct. 1974 (the stock market bottom)
Monetary flows (MVt) peaked Oct. 1982 (the stock market bottom).
(MVt)'s lag for long-term rates peaked Sept. 1981 (this century's peak in long-term interest rates).
Monetary flows (MVt) peaked in Jun 1984 (the stock market bottom)
Lags are not coterminous, e.g., the stock market bottom of 1982 was identifiable a year and ½, earlier
Go, presently inquire, and so will I, where money is. --- THE MERCHANT OF VENICE
1938-1940 roc's in reserves pulled us out of the depression.
1951 (Korean War) had the highest roc’s in inflation & in reserves since WWII.
1973 had the highest roc's in inflation & the highest roc's of reserves since 1913r.
1979-1980 had the highest rates of inflation & the highest roc's of reserves 1973r.
“Black Monday" Oct. 19, 1987, coincided with the sharpest and fastest peak-to-trough decline in the roc for real GDP since 1915.
The stock market's 1QTR top in 2000 coincided with a +3.24 (roc) in Dec. 1999, which reversed to -.32 in Feb 2000. An historic reversal.
Feb 27 coincided with the sharpest decline in 1) the absolute level of reserves, & 2) & an historically large peak-to-trough reversal of roc’s for both real GDP & the deflator.
The policy rule is ex-post. Bank debits & legal reserves are ex-ante.
Some people think Feb 27 started across the ocean .
The rate of change in monetary flows (MVt) for inflation is up. You can only head it off with a very tight monetary policy. The rate of change in monetary flows (MVt) for real gdp is negative. Combine the 2 & you get stagflation.
Now, because inflation ticks up starting in July, and the market gets that far, that will be the top.