The bull market rolled along to new highs as investors, unfazed by well-known problems (real and perceived), put money to work where it is treated best. Hedge funds, which were grossly under-invested in stocks and have trillions of dollars, have also been big buyers as they try to salvage the year and at least match the S&P 500 (SPX).  

Some wonder why stocks are doing so well this year (plus 25 percent) in the face of the news that would seem to suggest the opposite. The trigger for the recent rally has been massive buying by corporations and to smaller degree foreigners and individuals facing unattractive alternatives and seeing better growth prospects. There was also good news regarding interest rates.

Of course, earnings, more accurately the expectation of future earnings, are always at the core for investors. Although in most cases they are better than expected this year, as whole earnings are flat compared to 2018. Because of easy comparisons, they will be better in 2020 and that prospect is boosting stocks now. 

The Federal Reserve lowered interest rates a quarter-point and some expect another cut in December. I don't. In his comments, Fed chair Powell said interest rates won't be rising until the inflation rate stays significantly above its target (two percent). Someday that may happen, just not someday soon. There has been and will be downward pressure on prices and inflation, thanks in good part to the internet. 

Some would argue that deflation is more of a threat, which is why the Fed is leaving rates high enough to have deflation-fighting ammunition (rate cuts) if needed in a slump. Stocks rose sharply as Powell spoke and have risen since. Rising inflation undermines valuations and p-e multiples. No worries there. The economy is in very good shape. More people than ever are working and making more money than ever, real wages are rising, and most have more cash to spend. 

I continue to recommend stocks that pay and raise dividends each year in addition to the preferreds that were featured in last week’s article. One cannot underestimate the importance of dividends and dividend growth, especially as yields on bonds, CDs and money-market funds stay low. When the yield on the S&P 500 exceeds that on the ten-year Treasury, as it has for a while, stocks on average have returned 22 percent over the following 12 months. Ergo...expect more record highs ahead.