In the first half of the year, the market rally came from FANG (Facebook, Amazon, Netflix, Google) with most other areas only experiencing moderate advances. That’s changed. All major market indexes, including mid-cap and small-cap indexes, reached all-time highs. Stronger still are international markets, with iShares Emerging Markets (EEM) up 24 percent this year! That’s a good sign for global growth.

Even with stocks at record levels, I don't see excesses that merit concern. Yes, by conventional measures (P-E, book value, etc.) some of the leading stocks are indeed high, but the historical average levels for those measures do not include periods in which the number of stocks was falling as it is now and cash was accumulating to this degree, nor were there extended periods of extremely low-interest rates. Few strategists or market observers have connected the dots on this. 

There are distractions, but they aren’t hurting stocks. Investors are ignoring the situation with North Korea (even the South Korean market reached a new high). To their credit investors are also attaching no importance to the circus about the Trump administration and Russia. That’s about elections, not investing and earnings. 

Investors are also ignoring the small rise in Treasury yields as the Federal Reserve seems to be on track to shrink its balance sheet (more than $4 trillion) after ending the QE programs. The European Central Bank is doing the same.  I say "seems to be on track" because investors have thought as much before and been wrong. Remember what became known as the "taper tantrum" when investors were certain rates would rise as QE wound down (was tapered). They sold Treasurys in a panic and indeed rates briefly spiked. A mistake. Rates fell again. 

I am ruling out an extended rise in long-term rates, which would make bonds more competitive with stocks. The inflation picture does not and will not justify it. Janet Yellen recently said rates wouldn't need to rise much for monetary policy to be considered "neutral." Investors took that to be very good news, stocks surged and many preferred stocks reached 2017 highs. 

Investors are right. A low-rate environment with growing earnings favors stocks. Yes, there are distractions, but when you focus on what matters – earnings – the picture remains bullish.