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Markets set new record highs…how long can this last?

NOTE:  DFW Wealthsteading Meetup scheduled for 11/10/2019 is CANCELLED…I’ve come down with the flu and can’t travel this week. 

Markets continue to set record highs and the number one question I’m being asked is, “How long can this last?”

Although I think the S&P 500 is getting a little over extended, I’m currently holding my positions.  I realized that one tweet from the White House or Beijing can send this market into a tail spin; however, as I’ve previously stated, pessimism has been too high given underlying fundamentals.  The fear of a recession has been greatly overstated for several years.  [Check out this video archive from 6/6/2017:   Are we headed into a recession? ]

With the Federal Reserve affirming that rates won’t go up, probably through 2020, then the economy should continue to expand.

In the attached chart, note how the 10 Year Treasury yield bottomed out July 2016.  Then as the economy improved, the S&P 500 and interest rates both rose simultaneously.  This continued until rates became too restrictive, the S&P 500 peaked in October 2018 and Treasury yields peaked in November 2018.  Peak to trough, during this 18 month run, the S&P 500 rose over 34%.

In 2019 the cycle reset itself.  In January the FED reversed their policy, and Treasury yields eventually bottomed in September.  Will the expansion run for 18 months with a S&P 500 increase of 34%?  That’s what President Trump is hoping for.  I’m less optimistic but assuming corporate profits continue to improve, then there is definitely a pathway to the S&P 500 exceeding 3300 in 2020.  That’s a very moderate 7% from today’s close.

Or maybe the flu has made me delusional…time will tell.


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