Eight Straight Great to Date

By David B. Armstrong, CFA | Mar 15, 2017 | Weekly Market Commentary

Last week was the 8^th anniversary of one of the greatest buying opportunities of most of our lifetimes.  As you can see below, it was obvious to most investors that March 9^th, 2009 was going to be the bottom…

I’m sure everyone knows I’m kidding…I remember someone in my industry saying to me, “this could literally go to zero.”

Yes, he literally said, “literally.”

Now, eight years later, this bull market is the second longest in days (measured as of last Friday by the number of days without a 20% pullback) at 2,914 days.  The third best in terms of total return at 254%.  See the data below from Bespoke (the “strength” typo is theirs).

One of the interesting things about this bull market is that while no one wants to celebrate getting in at anything other than the very bottom (again, who had the balls to call the bottom and go all in on March 9^th, 2009?), you could have gotten in at any point over the next eight years and been pretty happy.

In fact, tacking onto what I showed in my last blog, even if you got in before a sell off, things ended up okay.  See this chart, also from Bespoke.

A Quick Look at Leading Indicators Versus Real Activity

First, the leading indicators.

The Fed appears confident that economic activity is accelerating and there are several leading economic indicators that suggest the Fed is correct.

• Weekly jobless claims are at the lowest level since the early 1970s. I have a little more below on employment and I’ve also written about employment in a recent blog.
• S. Leading Index has risen sharply over the last two months.
• Small business and consumer confidence are at/near decade-plus highs.
• Big business optimism just had its biggest increase since 2009. Bloomberg Markets had a piece out today on this.

But how does this sync with real activity?

• The Atlanta Fed’s GDPNow model, which tracks activity directly related to GDP, puts growth at a sluggish 1.2% as of March 14^th.
• The Chicago Fed National Activity Index, a broad-based index that tracks 85 monthly economic indicators, remains at a sub-par pace through January.
• Inflation-adjusted consumer spending fell in January.
• February’s strong jobs report was influenced by mild weather as construction jobs surged…there may be some payback in March and April.

So what gives?  Leading indicators look optimistic while the real activity is sorta…meh.  I think it’s straight forward…Investors are forward-looking and have been trying to price in a faster pace for the economy.

I don’t think it’s anything more than that.  I’m betting the real activity catches up.

Employment

I’m a little late on this blog and most of the news is out on the employment report last week so I’ll keep this part short.

On the surface, the recent jobs report was middle of the road. HOWEVER, seven years into the expansion and having payroll growth still strong along with modest wage growth suggests to me that there is still a good amount of “slack” in the labor force. I can’t remember job growth so evenly distributed across wage-levels.

Said another way, there is no bias toward the lower paying sectors.

The Fed

I don’t want to beat a dead horse talking about the Fed so I’ll leave it at this…Fed tightens tomorrow and the market does not seem to care.  That’s good.

What To Do

I know people are worried that the market has been up and is basically at a high.  But if you look at the Dow, it has been making new highs since it re-crossed the October 11^th, 2007 high of 14,165.  If investors sold just because they were worried about the market being at an all-time high or because they were worried, it would have ended up poorly for them.

Unless you are a trader, (and if you are reading this I’m pretty sure you ARE NOT), have a plan to always have cash that you may need over some period of time (12-18 months is a good gauge) and leave your investments alone.

Remember, no one has any facts about the future, just opinions.  Opinions are fine, but they are not FACTS.  The best strategy is to leave your investments alone and let them grow over time.

Important Disclosure Information 

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