By Graham Summers, MBA
“Why do stocks keep going up?”
This is the question investors are asking themselves over and over. This bull market is simply defying any and all risks, with every dip bought.
Consider that the S&P 500 has only had EIGHT down weeks since the November 2023 lows (34 weeks ago). And if we’re being honest, only four of those eight weeks were significant down weeks. The other four were extremely shallow with the dips being bought before the week even ended!
See for yourself.
What in the world is going on here? Don’t investors understand all the risks in the world today?
What is going on is that practically EVERYTHING that matters to investing is priced in NOMINAL, not inflation adjusted terms. In this context, higher inflation makes things look better than they are in real terms.
Think of it this way. Let’s say the economy (GDP) is growing at 5%, but inflation is also 5%. Technically speaking, ALL of the growth in the economy is due to inflation; in REAL or inflation-adjusted terms, there is NO growth.
This same exercise applies to corporate revenue and profit growth. When Apple or some other company reports results, they report the results in nominal terms, e.g. revenues grew by 6% as opposed to revenues grew by only 3% in real terms (growth of 6% minus inflation of 3% means real growth of 3%).
In this sense the fact that inflation remains elevated is HELPING all the data that investors care about. Put another way, everyone invests based on nominal numbers, NOT inflation adjusted numbers.
Thus, we have an environment in which the economy is supposedly growing at 3%+, corporate profits are growing at 7%, and the Fed is about to start cutting rates.
This is as close to a goldilocks environment as you can get. And it’s a MAJOR reason why stocks keep going up in countless risks.
As investors, our job is to make money, not argue about what the markets should be doing. And as I’ve outlined in recent articles, this means riding bull markets for as long as possible, and then side-stepping bear markets when they eventually hit.
In the very simplest of terms, you need to be invested in stocks, until an objective, verifiable tool (not your feelings) tells you it’s time to “get out.”
I’ve developed a tool that takes ALL of the guessing work out of this problem. With just one look at this tool, you can tell whether it’s a good time to buy stocks or not. I detail it, along with what it’s currently saying about the market today in a Special Investment Report How to Predict a Crash.
To pick up a free copy, swing by
Best Regards
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
