It was a great August, up 6% for the S&P 500, the best August since 1986.
But then again, it was a great July. And a great June. May was pretty good too, and April was downright noticeable.
The Summer Rally (S&P 500 Monthly Returns)
April: plus 12.7% May: plus 4.5% June: plus 1.8% July: plus 5.5% August (previously): plus 6.6%
Five consecutive months. What's happening?
"August will look like the capital markets are in favor of a cyclical US recovery," DataTrek's Nicholas Colas said in a recent statement to clients.
Colas freely admits that August's external return has a big asterisk: Apple's 18% run-up.
"This skewed everything from tech returns to growth / value performance spreads to the August S&P 500 return," he said, noting that without Apple, the S&P was only down $ 4 .1% on the previous month and not by 6.8%.
Still, it looks like the market is in favor of an economic recovery. The small-cap Russell 2000 was also up around 6% over the month. High yield corporate funds outperform all other bond market classes. If the trading community were concerned about an impending economic downturn, neither of these two sectors would be leading.
The market has maintained a combination of treatment / vaccine optimism and massive Fed stimulus.
There is still optimism on the vaccine front, but now that the Fed has announced its program to keep interest rates low for longer and tolerate higher inflation rates ahead of the highly anticipated September 16 meeting, many argue that the rally is on a " Put "the Fed based (one floor below the market) has gone as far as it gets.
"The Fed's simple monetary history is now priced into the market," said Alec Young, chief investment officer at Tactical Alpha LLC. "It's about buying the rumor, selling the news."
But even Young admits that this may just be enough to stop the rally, but not derail it. He also argues that the market needs a break in the relentless history of digital / work from home: "It's not healthy for the index to be dominated by some technology stocks," he said.
None of this means the market will go down, and there are still plenty of bulls out there who insist the market go higher.
Leuthold's Jim Paulsen is one of them: he has been bullish and remains bullish, despite freely admitting that the market could see a 10% correction.
He also freely admits tech stocks are expanding, but insists that the fundamentals for tech are completely solid and unrelated to 2000. Extended doesn't mean they're waiting for a crash.
And it strongly contradicts the popular notion that Wall Street was separated from Main Street.
"It's not just about the Fed. People think the rally is illegitimate and they're wrong. Look at the retail sales or the ISM or the real estate or auto sales. Look at the jobless claims improvement. You I hop all, "he said.
Paulsen believes the broader market will catch up in terms of the tight rally focused on technology.
How much? He said he wouldn't be surprised if S & P's corporate profits were $ 200 in 2021. The current consensus is at $ 165.
Win 25% higher than consensus for 2021? That would go a long way in justifying the rally.
"We saw a 12% drop in GDP, an all-time record," he told me. "But we could get an 18% improvement in GDP over the next 12 months, and that would be an all-time high too. That will bring the wider market with it. You will see a big league shift." If you plunge all of these companies into a depression and then force them into the most efficient one that has ever existed, and after all that, give them a war boom? Profitability is going to be maximized. "
Leuthold has told his customers to stay long: "I will own technology of the new era, but in the future I will have less of it and I will own more of the broader market – cyclical, international and small caps."
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