The other supporting factor, of course, is low interest rates, which probably explain a great deal of the higher valuations. With the Federal Reserve not signaling a rise in rates in September, and with other central banks continuing to stimulate, rates should stay low and continue to support markets.
Fundamentals likely to remain strong
Recent positive income and spending numbers show that consumers are continuing to drive the economy, and the surprisingly strong consumer confidence number yesterday reinforces that. Today’s good ADP employment number, though down from the incredibly strong levels of the previous two months, suggests employment growth continues to be healthy. With the industrial and manufacturing sector recovering, housing doing well, and even energy starting to recover on higher prices, the economic fundamentals look very likely to continue to improve through the month, supporting the market.
Still, expect some shocks
Given the low level of market volatility and current high valuations, I would not be at all surprised if markets bounced around in September. In fact, we’re overdue for some turbulence. At the same time, however, the fundamentals remain strongly supportive, which should limit any damage. History shows that serious pullbacks typically take place in times of economic stress and recession, and we just don’t see that at the moment.
In other words, September should be more of the same. Growth is poised continue, but the market may well move back and forth.
The real wild card over the next couple of months will be politics, not economics. If anything is likely to create a pullback, it’s the U.S. presidential race. Although I’ll be keeping an eye on the economic stats, the election is what really concerns me at the moment. Even there, however, the news may not end up being that important, despite any short-term effects.
Remain calm and carry on.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.