Insights & Advice

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Fourth Quarter Rally?

 

Here we are just a week away from surviving October, notoriously the worst month of the year. It’s been an up month so far and I’m increasingly optimistic.

Historically speaking, the longer a summer rally continues, the greater the probabilities that the stock market will finish the year in a strong uptrend. This year the rally has extended into October and I see no reason why the markets can’t continue to climb into the New Year.

It is just hilarious how investors, the media and just about everyone else seem to leap from worry to worry with barely a pause. It is as if optimism has become politically incorrect within the financial community. No sooner had the ink dried on the debt ceiling increase, than eyes and fears turned to the Affordable Care Act insurance exchanges or lack thereof.

By the end of the week, the supposed ramifications of these computer glitches and delays on insurance companies, small businesses and individuals had investors’ stress back up to the levels of last week.

I keep advising you not to sweat the small stuff. It seems to me that the present concerns—delays in Obama care, disappointing quarterly earnings by some companies, civil fines for the banking community—are for the most part overblown and short-term in nature. If anyone truly believed that a program as complex and far-reaching as Obama care could be rolled out without mistakes, glitches and delays, you probably are not grounded in the real world.

I have often said that Obama care is simply the opening act that will need to be altered, adjusted and then altered again for years to come. Implementing this kind of social program, like social security, is a process that requires time and effort to get right. None of the present concerns will come to pass, so ignore them.

Earnings, on the other hand, have been a mixed bag so far with some companies beating estimates, but guiding expectations lower due to disappointing business trends either here or abroad.  Given the impact of Sequestration cuts both this year and next, plus the still unquantifiable fallout from the government shutdown (800,000 layoffs times two weeks), who can blame these pressured corporate executives from using cautious language when predicting the future.

As for the multi-billion dollar civil suits levied against the too-big-to-fail banks, I say hurrah. If we can’t put them in jail, the next best thing is to hit them where their heart is—in their pocketbooks. My own opinion is that the regulators are going to make it increasingly difficult (through stiffer capital requirements) for these big banks to remain profitable and remain at their present size. In the future, I suspect these monolithic organizations are going to be forced to spin off many of the acquisitions that got them into trouble in the first place.

In the meantime, let’s look for my next target on the S&P 500 Index, which is 1,800.

 

 

 

 

Posted in A Few Dollars More, At the Market