Typically, at this time of the year, the stock market enjoys a rally. We’ve had a modest one, but realistically, most investors are still on pause. However, some investment professionals trying to catch up with market returns they may have missed are piling into many of the same momentum stocks that have led stock returns all year long. Valuations among these companies are getting more and more stretched.
Money flows into stocks are still modestly positive, but just barely. To have a meaningful rally higher, a broader list of sectors and industries need to participate. Now that there is an agreement in principal for a phase one trade deal with China, we will see if these sectors do indeed begin to participate.
The Christmas buying season appears to be off to a very good start. The U.S. consumer has been the driving force in our economy this past year. So what does this mean for the markets moving forward? Individual investors have been sitting on the sidelines waiting to see if a deal will be done. In fact, 135 billion dollars has been taken out of the equity markets this year by individual investors. The question remains is this phase one deal good enough to bring the average investor back into the equity markets.
What is clear is that the U.S. and Chinese economies will continue to disentangle no matter what kind of agreement is eventually struck. Businessmen in either country will want to reduce and diversify political risk. Thankfully, our economy is much less dependent upon exports than the Chinese one. Our companies, more than most, manufacture near markets they serve. Stay steady, my friends.
The Lonely Bull