“Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” – Sir John Templeton
Templeton’s first point—pessimism—is where I think the stock market and many investors are right now.
The powerful breakout in the Dow Jones Transportation Average and many blue chips on the stock market is very significant.
Pessimism regarding the stock market and the financial world is everywhere. But the U.S. stock market can advance in the face of poor unemployment, currency wars, budget sequestration, feeble banks, and massive monetary stimulus. It just proved that.
With just a little more certainty, the Dow Jones Industrials could easily jump another thousand points. There are continued low interest rates and extremely healthy balance sheets, plus tons of cash sitting on the sidelines.
Institutional investors are chomping at the bit to buy this market.
Buying in the Dow Jones Transportation Average and Dow Jones Industrials illustrates the jitters that big investors have. But that’s okay. Blue chip leadership is never bad. In fact, it’s always good.
The Dow Jones Transportation Average is off its high and is toying with its 50-day moving average (MA) right now. With the exception of the 2008/2009 stock market collapse, the Dow Jones Transportation Average has been flat for a number of years.
To me, its recent breakout and the participation from the rest of the stock market reveals the pent-up demand from institutional investors to put cash to work. With so much cash still sitting on the sidelines, there’s a lot of ammunition that could move this market much higher. The stock chart for the Dow Jones Transportation Average is featured below:
Chart courtesy of www.StockCharts.com
Of course, there will be more shocks. The situation in Europe is a mess; geopolitical risks from North Korea, Iran, and Syria are real; and economic statistics are atypical.
U.S. employment and labor participation are persistently weak. Inflation is prevalent and median inflation-adjusted U.S. household incomes have been trending lower since 2007.
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 28, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 28, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)