Economic Trends Supporting Higher Markets

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“Davidson” submits:

Wed, Jan 31 saw the SP500 decline intraday $80+. By Friday’s market close it struck another all-time high. The Net Non-Commercial Futures, $WTI and the 10yr minus 3mos rate reflected this mid-week burst of disbelief that the SP500 could hold against the negative onslaught of domestic and geopolitical news. But, without much fanfare, the economic news, Employment, Construction Spending, New Oders for Durable Goods and Real Personal Income continue rising trends.

S&P 500 Net Non-Commercial Futures Positions

S&P 500 vs 10yr minus 3mo

There is underlying buying of equities due to economics by those so attuned while those who are betting on recession and rate cuts continue to drive high-tech prices higher believing these to be the haven for a market collapse. This has been an interesting market to interpret with entirely new perspectives driving capital flows. History when examined in detail reveals every market cycle as having unique issues with which to contend. Our current cycle does not disappoint.

History also reveals that economics wins in the end, in every instance. If economic growth is present and persistent as we see today, equities benefiting from that growth eventually find favoritism by investors. Capital flows where the profits reside eventually. As, with humans in the argument of nature vs nurture, it is nature not nurture that wins out even though there are periods during which it appears that nurture is a major influence.

Investors should follow the economics. It is “Do what I do, not what I say” investing.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.