Stocks are rallying. The market is now up on the year. Only a couple of months ago, people were talking crash and bear market. Remember the Death Cross? I wrote about that back in August when it was all over the news. I said I was not "buying it," as in, not going along with it. That indicator, if you want to call it that, is probably one of the best money-losing indicators out there, at least in the medium to long term. If you sold the stock market every time there has been a Death Cross in the last 20 years, you'd be broke by now. You'd have gone broke a long time ago.
The way stocks are ramping higher, not wildly but just enough to keep people's suspicions and skepticism alive, is good. I like that. That's the proverbial "Wall of Worry." And I suspect there's a lot more of that worry coming soon. Next month, the Fed will likely raise interest rates, which will probably create a very nice buying opportunity when everyone jumps all over stocks and sells them blindly.
I will not be one of those sellers, I can assure you. Actually, I hope we do get a negative reaction because the Fed move is so widely expected. There's a strong possibility that we can get a big relief rally right off the announcement. Whatever happens, it's probably a good bet that there's going to be a lot of volatility. Maybe that's the best way to trade it; buy VIX futures.
The horrible terror attacks in Paris and the threats of more attacks from ISIS will have a bullish effect on economic activity and stocks. Let me first say that what happened was senseless and tragic. War is horrible, war is terrible, as is the scourge of terrorism and the fear, hate, misery and tragic human loss that it creates. My only wish is to have a peaceful world where everyone can prosper and live happily.
Do not brand me a cynic, but that war spending has been a major contributor to the relative strength of the U.S. economy. Now it appears that France will be significantly upping its spending following the Paris attacks. Russia, too, since last month's military operations in Syria, has also been increasing spending.
This new spending flows through the economy. This is a sort of trickle down, but a different kind of trickle down. Please, do not brand me a warmonger or depraved; I am totally against this kind of spending. I am just telling you what it is. Would I rather have this spending on roads and bridges and infrastructure and schools and health care and basic science and research and education? You bet, but I am not the one who gets to decide.
The thing about government spending is that it adds to GDP, the only difference being it might change what the economy looks like. It might change what sectors grow faster than others. If the government is spending on armaments and paying soldiers, then that might make the economy look a lot different than if it were spending on rebuilding highways and schools.
However, what economists look at every month, or every quarter, are the GDP numbers. If the economy is growing at 4% as opposed to, say, 1.5%, there will be a reaction in the markets. Very few people parse down and say, "Oh, but wait ... that went to defense contractors." They'll just buy the market on the fact that we now have stronger data. Similarly, the Fed will look at that and say growth is stronger, we may need to look at raising rates.
This is what I believe is going to happen. We will see some pickup in the economic data and it will send stocks out of their relative lull. Of course, we will still need to get that rate hike out of the way.