Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
Stock Market Trading Patience Pays Off with CHK Using Momentum Reversals - 19th Jan 17
Gold - How to "Buy Low and Sell High" Like a Pro - 19th Jan 17
State of the Global Stock, Financial and Commodity Markets Report 2017 - 19th Jan 17
The Hunt for Russia's Next Enemy - 18th Jan 17
Returning Gold Bulls - 18th Jan 17
Biotech Breakthrough Could Create A $11.4 Trillion Opportunity - 18th Jan 17
Bitcoin and Gold - Outlook, Volatility and Safe Haven Diversification - 17th Jan 17
Stock Market Uptrend on Borrowed Time - 17th Jan 17
The One Stock to Retire On - 17th Jan 17
Trump anti-Communist Counter Revolution - 17th Jan 17
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17
SPX Stocks Bull Market Update - 14th Jan 17
President Trump vs the Deep State that Hides in Plain Sight - 14th Jan 17
The Impact of Sir Alex Ferguson's Retirement on Man United's Share Price - 14th Jan 17
What Can Stock Market Tell You About Politics? - 13th Jan 17
Big Gold Buying Coming 2017 - 13th Jan 17
A Bullish Case for Gold 2017 - 13th Jan 17
Will Stocks Bull Market Continue to Charge or is it Time to Sell the News - 13th Jan 17
Gold and Silver Off To Shining Start to 2017 - 13th Jan 17
Gold’s Fundamental Outlook for 2017 - 13th Jan 17
Is trading stocks and shares just as luck-based as roulette? - 13th Jan 17
Trump CIA Like Nazi Germany - Fake MI6 Intelligence leaked to Fake News Mainstream Media - 13th Jan 17
USD in Decline. SPX and TNX May Follow - 12th Jan 17
CIA War On Trump - Leaks Fake MI6 Intelligence to Fake News Broadcast Media - 12th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Why The Stock Market Rallies Despite Worries

Stock-Markets / Stock Markets 2013 Feb 01, 2013 - 02:10 PM GMT

By: Clif_Droke

Stock-Markets

The fiscal cliff, tax increases, the debt ceiling, missed earnings - investors certainly have had much to worry about lately. So why in spite of these fears has the market continued to rally?

There's a Wall Street bromide that succinctly answers this question: "Bull markets climb a wall of worry." Fear tends to fuel higher prices when internal momentum is rising due to short covering and other technical factors. It's normally not until everyone has entered the market that the market finally tops out.


Many are wondering why the market has been so strong in the face of all these potential pitfalls. The best answer I've heard for this question to date is that the U.S. stock market is the "best horse at the glue factory" so to speak.

As one newsletter writer pointed out, "Pension plans get contributions every month and have to invest them. Individuals are saving money and they have to invest it. And high yielding bonds and CD's from yesteryear are maturing. What are your investment options?" Certainly not low-yielding CD's and Treasuries. Moreover, the dividend yield on the Dow was recently as high as 2.6%, well about the yield on a 10-year T-Bill. In other words, the U.S. stock market is winning the race for investors' dollars by default.

On the investor psychology front, the latest AAII investor sentiment readings have been at their most enthusiastic in several months. The percentage of bullish investors recently hit 52%, the highest bullish reading since last February 8. Bullish readings above 50% often signal market tops, or at least serve as preliminary warnings that a top is ahead. I would point out, though, that last year's (Feb. 8) 52% bullish reading in the AAII poll was followed by nearly two more months of higher prices in the S&P before a sizable correction occurred.

Along with increasing investor enthusiasm has come an increase in equity market inflows. CNNMoney pointed out recently that investors poured a record $8 billion into U.S. stocks at the start of 2013 after removing more than $150 billion from U.S. stock mutual funds last year. According to the Investment Company Institute, the $8 billion investors put back into stocks as of January 9 was the highest amount within a short space since ICI first began keeping records in 2007.

Inflows

As Hibah Yousuf of CNNMoney wrote, "The massive inflow represents a significant departure from the recent trend of investors fleeing the stock market." Along these lines, Art Huprich, chief technical analyst at Raymond James asks, "Is there a slow yet marginal shift out of fixed income and into equities taking place?" It's still early, but it's beginning to look that way. Assuming this trend continues it would certainly jibe with our Kress cycle "echo" forecast for 2013, which concluded that this year would likely resemble 2007 in many ways. In other words, 2013 could prove to be a major topside transition year with some major ups and downs along the way as investor bullish sentiment reaches a crescendo.

In the meantime, it will do well to keep in mind the famous saying of the venerable Charles Dow: "Neither the length nor the duration of a trend can be forecast. The best we can do is identify trend changes and act accordingly."

U.S. Economy

The Bureau of Economic Analysis said fourth quarter GDP contracted by 0.1%, which represents the first such contraction in over three years. Most of that contraction was due to a 22% decline in government defense spending, however. Personal consumption expenditures, accounting for 70% of GDP, rose 2.2%. This is more in line with the New Economy Index (NEI) which rose to a new high last week. According to Briefing.com, this was also the largest quarterly uptick since a 2.4% increase in consumption was reported during the first quarter of 2012.

New Economy Index

The NEI chart shown above is the true reflection of the U.S. retail economy. It's telling us that consumers are still spending and show no signs as yet of letting up. We haven't seen an economic "sell" signal in this indicator since the early part of 2010. It's possible, however, we could see one at some point later this year as the economic headwinds begin to increase.

Gold

Speaking of economic headwinds, these include the Congressional battle over the U.S. debt ceiling, a potential downgrade of the U.S. credit rating by Moody's, the continued weak labor market in the U.S., trouble in the Middle East and North Africa, and the coming implementation of Obamacare. Each of these factors, if not offset by an equally positive event, could prove sufficient to galvanize a gold rally at some point.

On the subject of the U.S. credit rating, the editors of The Kiplinger Letter concluded that if Moody's or Fitch Ratings were to downgrade the country's debt, banks, insurers and others "may need to shuffle some assets around. If Treasury holdings no longer qualify as ultra-safe, other, high-risk investments may need upgrading to toe the line on statutory capital standard requirements." Kiplinger also suggested that this could cause some erosion of the dollar's status as a reserve currency. Such a development would likely prove favorable to gold.

One person who believes gold will have a good year in spite of the negative investor sentiment is Rob McEwen, chairman and CEO of McEwen Mining (MUX). According to McEwen, gold tends to have a positive performance in the year following a U.S. presidential election. He points out that in the seven electoral contents from 1984 to 2008, gold climbed by as much as 85% in the year after the election. The yellow metal suffered only one decline in that span, a 36% drop in 1997, the year following Bill Clinton's second election victory.

McEwen also noted that gold stock prices as measured by the Gold Silver Index (XAU) fell in all presidential election years dating back to 1984, including last year, when the index declined 8.3%.

We're currently in a cash position as we await the next confirmed buy signal from our indicators for gold.

2014: America's Date With Destiny

Take a journey into the future with me as we discover what the future may unfold in the fateful period leading up to - and following - the 120-year cycle bottom in late 2014.

Picking up where I left off in my previous work, The Stock Market Cycles, I expand on the Kress cycle narrative and explain how the 120-year Mega cycle influences the market, the economy and other aspects of American life and culture. My latest book, 2014: America's Date With Destiny, examines the most vital issues facing America and the global economy in the 2-3 years ahead.

The new book explains that the credit crisis of 2008 was merely the prelude in an intensifying global credit storm. If the basis for my prediction continue true to form - namely the long-term Kress cycles - the worst part of the crisis lies ahead in the years 2013-2014. The book is now available for sale at:

http://www.clifdroke.com/books/destiny.html

Order today to receive your autographed copy and a FREE 1-month trial subscription to the Momentum Strategies Report newsletter.

By Clif Droke

www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife