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The Dow and the S&P 500 both broke eight-week winning streaks. It has been an impressive run-up in prices, but not without precedent. Everyone remember 2013?

Well in case not, we had a nice strong bull market in 2013.

No two periods are exactly alike, I get that, but comparing key metrics and some of today’s concerns with 2013 offers a perspective – things really weren’t that different back then.

However, I’ve been getting different versions of the same question for a few weeks now, “Does anything about the current environment give me pause?”

It’s a little bit of a loaded question since investing always carries risk and anyone that claims to know what’s happening next is either a charlatan or a fool.

Market corrections are really about probabilities in my mind. In other words, what is the probability that we will have some sort of correction caused by an economic event like a recession?

My answer is that I just don’t see a high probability of a recession or an economic event on the horizon over the next 12-18 months. I realize that with the markets at all-time highs and also looking expensive, it may FEEL LIKE the market is about to correct.

And it might. But it might not. And if it does, I don’t think it will be because of a recession or economic event…it will more likely be a behavioral reaction. If that happens, there will be a bunch of “I told you so-ers”, but they are just guessing. Don’t let anyone break their arm patting themselves on the back if they win the “best guesser” award.

The bottom line here is that we don’t see anything out there on the horizon that changes our current investment view…it just seems clear to us that the wind is still in our sails as the global banks are pumping more capital into the system than is needed by the economy and that is supporting markets globally.

It’s not that a selloff can’t occur. We’ve experienced four corrections of at least 10% in the S&P 500 Index since the bull market began in 2009. But investors remain optimistic that a profit-punishing recession isn’t likely in the near term.

Reasons? Most leading economic indicators are positive. Growth is accelerating. Inflation is not. Interest rates are still really low. The yield curve is positive, and I suspect we will see it steepen. At some point I think we will see the dollar strengthen as passage of tax reform gets closer.

I think people and businesses like sureness and when the tax reform is passed it will unleash spending that has been held up…since no one was really sure whether a bill would be passed and what it would include. (I know we still don’t know what will ultimately be included but we kind of know what it will look like.)

I don’t think the bull market is over. I’m not saying it will last another 8 years, but I don’t think we are heading into a recession over the next 12-18 months.

Probabilities are better than guesses. Guesses are made with your gut and caveman brain.

We continue to like the financial, tech and industrial sectors alongside a higher-than-usual exposure to developed and developing overseas markets. We like equal weighted exposure to indices versus market cap weighted indices to limit the exposure to the very expensive FANG stocks.

Here’s a Goldman Sachs chart from 2016. I, along with most others, believe that rates will rise.

Sector Correlation with Treasury Yields
I remember the late ’90s very well and the calls for the market at a top in ’96, ’97 and ’98. Those calling for a top never dreamt of a year like 1999. I was brand new in the business and 1999 will always be my benchmark for measuring complete mania…we are nowhere near those levels. Take a look at the chart below. I think we are in the “Boom” cycle, but not near the “New Paradigm” peak.

New Paradigm Boom

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