In the first half of the year, the market rally came from FANG (Facebook, Amazon, Netflix, Google) with most other areas only experiencing moderate advances.
That’s changed. All major market indexes, including mid-cap and small-cap indexes, reached all-time highs. Stronger still are international markets, with iShares Emerging Markets (EEM) up 24 percent this year! That’s a good sign for global growth.
Even with stocks at record levels, I don’t see excesses that merit concern. Yes, by conventional measures (price to earnings, book value, etc.) some of the leading stocks are indeed high.
But the historical average levels for those measures do not include periods in which the number of stocks was falling as it is now and cash was accumulating to this degree, nor were there extended periods of extremely low interest rates. Few strategists or market observers have connected the dots on this.
There are distractions, but they aren’t hurting stocks. Investors are ignoring the situation with North Korea (even the South Korean market reached a new high). To their credit, investors are also attaching no importance to the circus about the Trump administration and Russia. That’s about elections, not investing and earnings.
Investors are also ignoring the small rise in Treasury yields, as the Federal Reserve seems to be on track to shrink its balance sheet (more than $4 trillion) after ending the Quantitative Easing (QE) programs. The European Central Bank is doing the same.
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