Back in April, I made a call that the Dow will hit 20,000 by year-end. I stick to this call and feel the market will surge higher in the fourth quarter for the following reasons:
1) Technicals – Since the Brexit event in June, the market has been under strong accumulation by the big institutions. The consolidation of the past 4-6 weeks is showing very few signs of selling, telling me this is a healthy pause before the next leg higher. More importantly, leading growth stocks continue to act very well and the strength is spreading across many sectors.
2) Fundamentals – The market is a discounting mechanism. It has already priced in the recent earnings recession and is looking forward to a recovery 6-9 months from now. The last time we had this many consecutive months of year-over-year EPS declines was October 2002 and March 2009. Both were great times to be involved in the market.
3) Sentiment – Almost everyone I talk to continues to hate this market. I can’t stress enough that it’s not just apathy, it is outright fear and constant talk of a “crash.” If you don’t believe me, just ask 10 random people what they think of the market and see the results. As they say, the market tends to fool the majority and I don’t see a major decline coming when everyone is expecting it.
4) The Fed – We are still in a globally coordinated effort to keep interest rates low and the markets high. As I have been saying for a long time, the Fed is NOT raising rates anytime soon (which they confirmed again today) and this backdrop will continue to give the market the fuel it needs to grind higher.
The new highs made in early July could be the BEGINNING of a new Bull Market. Bull Markets are born on pessimism and right now is a real-time example of it. The main thing that would change my bullish stance is if I see the big institutions start to consistently sell stocks and if the market leaders start to break down. Until then, I plan to remain bullish and take advantage of the fourth quarter, which is seasonally a strong time to be in the market. I summarized all these points in this recent segment on Fox Business:
I can be reached at: jfahmy@zorcapital.com