The Market Is Nearing Its Priced-To-Perfection Moment

Who doesn’t love a bull market? Well, maybe some grumpy old lobster boat captain somewhere who has only been caught smiling three times in history, but for most of us the ride has been thoroughly enjoyable.

Still, we must not forget that markets, like every other living organism, breathe in and breathe out. If we hold our breath too long, the exhalation can be a bit violent.

Right now investors are seeing good times. The Fed is likely to bow to political pressure and lower interest rates yet again this month. The EU has embarked on another round of quantitative easing. (With negative interest rates, allegedly sane people are paying their central banks to hold their money for them rather than demanding a return on those funds.) The People’s Republic of China is talking nice about working together with the USA to reduce the trade and tariff kerfuffle. What’s not to like?

Allow me to first show a series of recent market charts before deciding whether to don my lobster boat captain cap:

Source: Yahoo Finance

Since the closing high for the S&P 500 this year was 3026 on July 25^th, yep, it sure looks as if we are within striking range of breaking the record any day now.

Heck, if you look back at the beginning of the year, you can see this has been a whiz-bang year. As I wrote for my Investors Edge® subscribers on SA, if you had tucked your money under your mattress and only started investing on January 2, 2019, you would be up a wonderful amount.

Source: Yahoo Finance

However, most of us did not start investing at the beginning of the year. In fact we only have to go back less than 1 year to see that this is only a “record” if you work on Wall Street and get paid by the cheery, chipper word. Here is the chart of the S&P last year at this time. The market S&P hit a high of 2931 on September 20^th, then fell off the proverbial cliff.

Source: Yahoo Finance

Finally, here is how the S&P – and likely most investors – actually fared over the past year:

Source: Yahoo Finance

After all the ups, downs, bumps, potholes, hot air balloon rides, and whoopin’ and hollerin’ we are today up from a close of 2931 just 51 weeks ago to today’s midday quote of 3014. That is a rise of only… 2.8%. Darn it, we need a new record. We deserve it!

But will we get it? Maybe. But if we do, I can’t imagine it will be long-lived. Normally, the third year of the Presidential Election cycle is a good one. There is hope and optimism all around and the administration in power is doing everything it can to ensure a re-election victory. That means spend, spend, spend to garner votes, make certain interest rates are low, get people employed, etc.

But what happens if the powers that be are so giddy or unaware of history that they peak too soon? What if everything is Goldilocks-perfect and the election is still 14 months away? That is the position I see the country and the markets in right now. It doesn’t leave a lot of room for what-ifs.

What if the People’s Republic of China decides they are dealing with amateurs and they can out-wait the current administration and deal with a more pliable one going forward? What if the current productivity gains begin to slide? What if the Fed loses its power to intervene in the event of real trouble, having already used up its most valuable ammunition? Etc.

The bottom line for me is not that the bull market is over, though at this age it might be a bit off balance and need to watch its step. But it does seem to me that in a news-driven era, any “bad” news, and hint of a what-if, can lead us down the short-term correction path.

For that reason, even though I see some fine companies and funds, I don’t see them at prices I like. With gold enduring its own natural correction after a too-fast move up, I will be advising my clients and subscribers that I’ll be adding to those positions, entering limit orders below the current market (and hoping to buy my favorites for what I imagine will be a continuing full court press during the election season) and placing tight trailing stops on most of my current long positions.

I am a perennial optimist and a 90% -- Okay 75% -- of the time quite bullish on the market and 100% of the time bullish on America, the American work ethic, American innovation, and American capitalism. Right now, however, I am feeling just a little like this…

Source: AMZN