Market Commentary for the week of August 29, 2016

Home stretch
The third quarter is winding down and, thankfully, the economy, along with the financial markets, appear to have gotten through the "doldrums period" that is usually associated with the summer season relatively unscathed. You've heard the old adage, "sell in May and go away".   That appears to be the case this year.   Left uninterrupted, fundamentals are in place to project out to a modest cyclical expansion for the next few quarters, at least.  We are not adjusting our projections for a gradual and steady pace of wealth creation in the markets.

 The chief design principle of those forecasts is that the recovery is sufficiently taking root, and the recession causes are predominantly in the rear-view mirror.  This is not to suggest that one shouldn't be aware of or focused upon the remediation and eradication of the greed and avarice which pre-dated the global economic collapse.  Many of those factors were both fundamental (economic) and spiritual (moral) in their origins.  But we are witnessing a more conspicuous effort by government leaders, monetarists and business activists to reign in the forces of devious behavior than prior to 2008.

One only need look at the recovery in portfolio valuations during the last 8 years to realize that there is no incentive to take the market back to a dangerous precipice and risk, once again, any hard-won gains.  Indeed, home prices, stocks, and savings are heftier today; portfolios are larger; and our collective psyche is somewhat less apprehensive.

Surveys and transactions also find that the wealthiest amongst us are more willing to take risks and speculate in financial assets.  As the population's net worth expands, so too does the level of investment banking, capital market asset formation, and global research and development.

The result is an amplification in relative strength integers framed by a more enduring, less cyclical, pulse.  While this intensification, by itself, might sometimes be a unique danger sign, we are noticeably finding a broadening of potential in sectors which heretofore have lain dormant or been lagging "traditional" leadership categories.  In other words, breadth  is widening even though the pace  might be modulating.

As stated, relative strength amplitudes (time duration from trough-to-trough) might be contracting, but stock profit potential is accelerating based upon the creation of new wealth during the past half-decade as well as improving economic data.

No worries?

Is there anything, then, which might derail the market's forward progress?  Of course there is...there always is.  That is the nature of economics, cycle phase investing, and market speculation.

Many point to a widening net-worth and wage gap in the population.  Whereas certain gains might be obvious and pervasive, younger first-time job seekers are having a hard time finding employment in their chosen fields of endeavor.  For this segment of the workforce, as well as another majority living less- well than the affluent, home buying is simply out of the question. Other "opportunity impediments"  include the fact that food and transportation are getting more expensive, healthcare costs are becoming prohibitive, and there are fewer, if any, discretionary funds with which to dabble in the stock markets.

For these less fortunate citizens, their confidence quotients are measured on a month-to-month or day-to-day scale.  How well they survive the next 24 hours is the barometer of their expectations.  Dividend yields, P/E ratios, and earnings forecasts  are terms they only read about but do not experience firsthand.  For them, they feel heightened risk based upon a multiplicity of factors that the wealthy don't even pay attention to.

We need to admonish our representatives not to abandon the disenfranchised, at the risk of risk permanently damaging their upside pursuit and potential.  This might include central banks allowing interest rates to "float" to a competitive equilibrium, no corporate hoarding of cash, and CEO's who guide their businesses everyday to try to develop game plans which build innovation and ingenuity into the economic (and social) landscape.