Nothing that occurred in the past week has shaken our stance that the market is currently in good shape and likely to move higher. That’s the scenario the odds favor. Of course, we were also threatened by extraordinary threats which raised their head as well, confirming our belief that we need insurance in this crazy world. Let us explain …
Virtually all major stock groups made gains last week. The S&P and the Dow hit new highs, with the latter rising 1.23% for the week. Our indicators remain favorable. The broad market is not performing quite as well as we’d like, but the divergence is miniscule.
Growth may be slowing in the U.S., according to Janet Yellen at the San Francisco Fed, but worldwide growth is on a tear making it hard for us to get bearish. Free cash flow is historically high, and stocks are quite reasonably valued, so smart investors are taking advantage of the opportunity to buy low. One example, Warren Buffett, the world’s greatest value buyer, has been increasing his holdings in equities. Stocks now account for 60% of Berkshire Hathaway’s net worth, up from under 40% in 2002.
Inflation, on the other hand, is a growing problem. All measures of inflation are rising today, and the dollar is dropping. Nonetheless, we must bear in mind that inflation, while it makes life hard for consumers, doesn’t cause recessions. Even in the 1970s when inflation reached double digits, the market remained in a bull mode.Read more...
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