In defense of an “up” market…

You don’t always have to explain away a strong market. We heard more clamoring for a bearish tilt in this quarter than at any time in recent memory. “This has to be the top,” one commenter would observe. “Here are 10 reasons why this market is due for a tumble,” another article would read. There was no shortage of explanations for how the rally was some variation of Fake News and yet the rally itself was very real. We can debate valuations all day long, but the fact remains, those calling for a second quarter tumble after a mid-April slip and a sharper May sell-off were flat-out wrong.

 

On the challenges of market calls…

…feeble attempts to explain away the market’s quarterly run up is not only memorable to us as an indictment of the premature Bear Market prophets. Equally incorrect, in our estimation, are the optimists quick to credit the late 2016 and early 2017 rally to outside political forces. Truthfully, the Trump Bump myth has been busted – not by a market decline but by a prolonged rally despite relatively little meaningful policy change.

 

Those who credit Trump for the market’s rise this year (The S&P 500 is up more than nine percent over the first two quarters), are short-sighted. Sure, Trump may ultimately oversee the passing of a debatably better healthcare bill and at some point meaningful tax reform may come to fruition. But, if you believe the market was already accounting for these changes in the late stages of 2016 and the opening months of 2017, how do you explain the market’s continued rally despite only residual progress on healthcare and no tangible advancement on tax cuts? If the market had truly been responding solely to Trump’s potential, then recent impediments would have curtailed the market’s run up. That has not been the case.

 

Our second quarter newsletter can be read in its entirety here.


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