Trading Strategy
Even the bulls were amazed as technology companies and financial shares push higher, and U.S. stock indexes hit fresh record highs. The common denominator that is driving the stock market higher is QE or Quantitative Easing, and it’s still far from over, and going to take a while to unwind the last 10 years of it. Last quarter the Russell 2000 outperformed the S&P by 4.16%, its largest monthly beat since November of last year. According to FactSet, despite the geopolitical risks, the S&P rose 4% in the 3rd quarter, its 8th consecutive quarter of gains. Factset said, ‘stocks have more room to advance’, with an unusually high number of S&P 500 companies issuing positive revenue guidance for the third quarter. Bears and the bulls seemed uninterested in a serious battle. The bulls are likely winded after an impressively powerful rally out of the mid-August lows. The bears, if there are any left, are probably shell-shocked. A stronger dollar and increasing prospect of higher interest rates is reflected in the updated chart below as financial shares exploded higher. Energy, Materials and Industrial stocks remain elevated. Energy shares jumped over concerns about an adverse impact of storm damage on oil and gas inventories. The post hurricane rebuilding effort is expected to boost Industrials and Materials stocks. With earnings announcements upcoming we are taking advantage of the opportunity to ‘buy the dips’ on stocks on our watch list.
