Here we are, right smack in the middle of the week and the market is holding steady at the higher altitude. True, the air is thin, but the footsteps are certain to avoid a serious fall. Even Poroshenko and Putin seem to be stepping boldly toward a higher place.
- Ukrainian President Petro Poroshenko promised after late-night negotiations with Russia’s Vladimir Putin to work on an urgent ceasefire plan to defuse the separatist conflict in the east of his former Soviet republic.
Geopolitics has taken to the rear of the market trek. “Let them work it out,” the market says. All eyes seem to be forward now, as they should be.
- The stock market is a discounting mechanism that looks forward and not back. So, with stocks at all-time highs and refusing to succumb to the bears’ wishes, it appears that investors expect things to improve down the road.
And why not? Up ahead is the next peak, the new high for the market, and to get there, it will follow the confident Sherpa up the trail. Nothing like confidence to go where no man has gone before.
- U.S. consumer confidence rose more than expected in August, climbing to its highest since October 2007.
This would make the fourth straight month of consumer confidence climbing and nothing could be more positive for a forward-looking market than consumers feeling good for four straight months. Wait! I retract that. One thing could be more positive, but without consumers spending, it is virtually impossible to achieve.
- The S&P 500’s price-to-earnings ratio is within historical norms, leading many analysts to believe stocks are not overvalued.
Not only is the P/E ratio within historical norms, which means the market has no reason to freak out, even if the Bear clan says the market should be freaking out, but it is also right there with the Sherpa and the market at the higher altitude.
- Remember, the “E” in the P/E ratio is earnings. And don’t look now bear fans, but earnings are at record highs. It doesn’t matter whether we’re talking about GAAP earnings, operating earnings, or normalized earnings – they are all are record levels.
And there you have it. Consumers are spending and businesses are making money and the market is climbing to new highs and all is normal on the trek. Wait! I have one more thing hanging out with the market at record highs, a not-so-small thing to be sure.
- It is worth noting that the level of dividends being paid out on the S&P 500 is at all-time highs.
Another all-time high, but this high is the firm footing underneath each step the market takes to a higher place. Investors are getting paid to take the ride with the market and they are getting paid well. When that is happening, not only is the Sherpa confident, but the financier of the expedition feels good enough to keep the money flowing, to keep the market climbing.
- Keep in mind that if earnings (or dividends, or sales) can grow at a rate that is better than expected, then prices can advance as well – without the valuation ratios becoming a problem.
And there you have it, again. Any rebalancing or correcting the market does in the near future, it does it because it needs to and the catalyst will be something other than the most fundamental of all fundamentals – earnings.
As long as stupid people killing stupid people does not cause a landslide somewhere in the world, and as long as the Sherpa is confident, the Sherpa will take the market to even higher highs. Get ready to see a view never seen before.
Trade in the day; invest in your life …
