Tuesday, August 12, 2014

NASDAQ poised to take a breather after two-day advance

Stock markets rarely rise in a straight line. Even if NASDAQ is destined to hit a new near-term peak within the next couple of weeks or even the next couple of days, it would be perfectly plausible for it to pause a little, consolidate a little, or even make one more valiant bear attempt to "test" the recent near-term low before continuing to advance. More than a little volatility is to be expected.
NASDAQ is still stuck in a minor mini-correction – about 2% off the the recent near-term peak on July 24, 2014. It is also caught in a fairly narrow trading range – not quite 4% from the recent near-term peak to trough. A lot of this is simply the random volatility that comes with summer doldrums of slow trading, including people simply imagining that they are spotting a trend that is mere coincidental volatility.
Meanwhile, the real U.S. economy continues to drift along, incrementally improving, but neither booming nor busting. That means that a lot of companies will be seeing improving fortunes, but with quite a few stumbles along the way as well. As long as the economy sees a net improvement, the stock markets should as well.
Geopolitical events are really a side show here. If anything, they assure that the government will continue spending that will end up in the pockets of shareholders.
And the Fed will not really be a major issue here either. The economy and most individual companies have long since gotten past a dependence on ultra-cheap money. And, the Fed is not so likely to steeply raise interest rates over the next year anyway. Sure, quantitative easing will end in October or so, sort of (the Fed will retain a huge balance sheet for the indefinite future), but few if any companies will be significantly impacted by that prospect. Sure, interest rates will rise incrementally over the next year, which will impact the cost of capital, but the improving economy will likely more than offset that additional cost. Maybe two years from now we could see a new slowdown of sorts, but the stock markets don't look that far down the road. Maybe nine months, tops.
-- Jack Krupansky


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