Stocks Breakout From The 3.5 Month Downtrend

There’s never a time where you want to celebrate being correct, because you’ll miss the next move. That being said, it appears the market is supporting the notion that this entire move since February was just a correction. As you can see from the chart below, with the 0.94% move upwards on Thursday, the S&P 500 broke out from the recent string of lower highs. The chance of the market making a new all-time high this year has increased. We endured the fears of tariffs, geopolitical risks, and an economic slowdown to get to this point. I was always on the side of buying stocks at the low end of this range especially with solid earnings growth, but predictions are never certainties, so there are moments where skepticism grows. On the geopolitical front, President Trump will be meeting with Kim Jong-Un  in Singapore on June 12. Like I mentioned in a previous article, based on North Korea releasing three Americans they detained, I’m optimistic that there will be a positive outcome.

Earnings Growth Reason To Stay Optimistic On Stocks

Now that the market has broken out from the streak of lower highs, I think it’s fair to focus on the fundamentals which got us in this position in the first place. No matter how bearish sentiment gets, there’s not much justification for stocks to fall in 2018. In my opinion, your level of bullishness or bearishness depends on where you think multiples will go. Because I’m calling for a 5% to 10% increase this year, I consider myself very cautions as that implies a sharp multiple compression. I wouldn’t short stocks if they were above the January high, but I would recommend raising cash. I’ll be looking for signals of economic weakness which portend a recession is coming in 2019 and 2020, but now I’m actually looking for green shoots. All this success S&P 500 firms are seeing doesn’t stop at their bottom lines. It pushes up the consumer and the overall U.S. economy.

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