The market is on a tear—it seems to never go down. I wake up every morning and check the market, not to see if it is up, but to see how much it is up. This year the market has been amazing—tearing higher in spite of some strong headwinds, including:
1. Near total dysfunction in Washington.
2. When not dysfunctional, congressional action and inaction hurting the economy. Just this year, DC anti-economy antics have included sequester, raising of the payroll tax, raising income taxes, the government shutdown, the debt ceiling debacle, and on and on.
3. Fear of the end of tapering. And tapering WILL occur. The question is not “if” but “when”.
4. Fed uncertainty. First it was fear of the unknown, in the person of Larry Summers. Now, it is fear of the known, as Sen. Rand Paul just today threatened to thwart Janet Yellen’s nomination.
5. Mediocre earnings reports and numbers out of China (some good, some bad)
Yet the market continues to go up and up—relentlessly.
There is an old saying on Wall Street that applies to strong bull rallies: “The market never goes down!!!——-Until it does.” Yes, all rallies must end. The question is when and at what price level. Now or later? At 1770 or at 2100?
As we approach the end of the year, the market must contend with various year-end hurdles. Even today, the FOMC concludes its October meeting. While no changes in policy are expected, the fed could say something that is interpreted as putting tapering back in play. Clearly, the market would not like that.
As we enter November and December, retail sales become very important. Many retail stocks are way down this year. And some experts are predicting weak holiday sales, largely because of the economy-harming dysfunctions noted above.
Many indicators are available to market prognosticators—some bullish and some bearish. To me one of the most important is that margin debt is at a record-high, over $400 billion. This is not good. Margin calls often pour fuel on a small correction, turning it into a sharp, quick and painful spike down.
In sum, the market has been amazing. But all strong upward moves will end at some point. Remember, “The market will never go down!!!——-Until it does.”
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