The global economy is weakening, but the global economy has never led the US into recession.
In this week’s Market Signals podcast, our Research strategists discuss some of the most frequently asked questions they’ve received after the 19% rally in the S&P 500 that followed the December 24 lows.
The big question: can stocks really go higher?
The LPL strategists cite many reasons to think the bull market is alive and well. Earnings are better than expected with a more dovish Fed doing much of the lifting. However, the easy part of the rally has occurred; the next 10% rally will likely be more difficult.
High valuations are common worry. But factoring in historically low inflation and interest rates, the strategists say they don’t necessarily see valuations as being high. By some measures, they may even be considered cheap.
Overall market breadth is strong, which means many stocks are participating in the rally. That’s a healthy backdrop for continued gains over the longer term.
Some of the recent economic data has been weak, but the strategists don’t see this as the beginnings of a recession. Instead, it’s likely weakness coming off the huge fourth quarter sell-off and volatile economic data courtesy of the government shutdown.
Stocks are historically overbought after the huge rally since December 24. Here’s the good news, very overbought markets can actually continue to outperform. Per the above chart, when more than 90% of the components in the S&P 500 are above their 50-day moving average and the future returns have been quite impressive.
Catch this week’s Market Signal podcast for more in-depth market insights. To make sure you don’t miss any Market Signals podcasts, subscribe to the series on iTunes, Google Play, Spotify, or wherever you get your podcasts.
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