Every week, market veteran and president of Winston Capital Advisors, Fabian Onetti, gives his take on what will impact markets in the weeks ahead.
The Dow Jones Industrial Average is up 2.5% for the year and the S&P 500 has risen roughly 4.3%, and at its highest on January 26, the two markets were up about 6%. Almost all markets around the world did very much the same.
After that, we had the correction and a lot of volatility, and now we are healing the resulting wounds. But what if the market melts up? For example, what if it experienced a sudden rally of 7% or more from here?
Most Wall Street houses are very positive about the markets, citing the strength of the world economy, lower interest rates, good earnings, tax reform and good investor sentiment.
However, when you see the dedicated TV channels, or as I have learned in my conversations with investors, I find very few people who are bullish on the market. Actually, they sound very gloomy.
I have to admit the January correction scared a lot of people, mostly because it caught everybody by surprise. Since then all the inflation numbers have been very tame.
The bond and equities markets have taken notice, slowly stabilizing and even starting to rally. Some large investors and fund houses like Pimco, Bridgewater Associates and Morgan Stanley have turned positive on the bond market at these levels.
Usually, a market melts up when the investor sentiment is very negative but the market keeps going up. At some point, the bear investors give up and rush to cover or deploy fresh capital, resulting in a sudden and violent rally, sometimes in the form of parabolic charts.
Could it happen now? Over the last month and a half, we have been dissecting economic numbers in great detail. Everybody is looking for evidence of a lurking giant inflation monster ready to pounce. If so, the central banks will have to react accordingly by raising rates. Then everybody will tremble.
Unfortunately for the bears, that scenario seems further and further into the unknown future.
We are still hostage to the numbers measuring economic health late in the cycle, but if we suddenly discover that the game will go into overtime, the market could undergo a very powerful and sudden rally.
Winston Capital Advisors is a firm that advises international advisors on capital markets and wealth planning. A former director at Morgan Stanley, Onetti has over 30 years of experience in international wealth management.