Why Stocks Are Rallying
Thus far fourth-quarter earnings season is confirming what most investors had wanted to hear, lower tax rates are likely to boost profits and may even percolate into the broader economy. But it’s the guidance from companies, especially regarding the tax cut, that investors will continue to closely monitor. “We are finally hearing from companies themselves of what they will do with the tax windfall. And so far it looks like they plan to spend about a third on wages or benefits to employees, a third on capital investments and another third on share buybacks,” said Maris Ogg, president at Tower Bridge Advisors. An expectation of higher profits and continued economic growth is most likely a reason behind a continued rally in the stock market, with all of the main benchmarks sitting at record levels. As we pointed out recently the stock market has never performed this well and bullish exuberance has taken over. The S&P 500 has now gone 395 trading days without falling 5% or more from its 52-week high, the longest such streak on record. The last 10% sell off was in Q1 2016, when the S&P 500 hit a near term low of 1810. The updated chart below displays performance results since the beginning of the 4th quarter.
(Click on image to enlarge)
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