Are U.S. Stock Investors Wearing Rose Colored Glasses?

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The U.S. stock market saw massive growth over the past 9 years. A time that will be marked as the longest bull run in history at the end of August. At the end of 2017, the stock market exploded seeing 250% growth in a matter of months, this bolstered investor confidence to unprecedented levels but also boosted their greed. For the whole of 2018, the market has been rather dismal. The Dow Jones Industrial Average (INDEXDJX: .DJI) is only up 2% on the year with the Nasdaq Composite (INDEXNASDAQ: .IXIC) and the S&P 500 Index (INDEXCBOE: .INX) faring only slightly better.

Despite the languid appearance of the charts it hasn't stopped investment firms like Goldman Sachs Group Inc (NYSE: GS) from painting positive possible scenarios. They, or more accurately their clients, say that if trade tensions ease, the Federal Reserve ceases rate hikes, and growth is better than expected the market will surge upward once again. Goldman themselves actually forecast a further slowdown of economic growth and lower returns on the stock market by years end. It seems that their investors have a much different idea and imagine that things will work out just fine. 

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Unfortunately, reality doesn't look like it will be kind to their high expectations. Trade tensions are unlikely to decrease during the current situation, as soon as one crisis is ended another three pop up. The U.S. is engaged in trade wars on multiple fronts, against allies and changing positions on a daily and sometimes hourly basis should be invoking a higher level of uncertainty than we are seeing.

What is ahead for the economy? 

The Fed is likely to enact more interest rate hikes to keep ahead of increasing inflation rates, and an economic slowdown after the last quarter is almost a guarantee. On top of all of this, the deficit has risen 21% contrary to Larry Kudlow's claims, along with increases in the national debt and spending. Estimates unanimously put the U.S. debt topping 1 trillion by 2019. 

Despite the hard data showing wage growth severely outpaced by inflation, price hikes from tariffs, and the highest level of income inequality in the world we keep getting told that things are just fantastic. That is a bold faced lie, and increasing pressure on consumer's buying power will start to bleed over to businesses.

Much of the stock markets growth over the past year has been artificial, supported by stock buybacks rather than actual improvements to the businesses themselves. This is why I say investors are wearing Rose colored glasses at this time. With the ugliness of reality staring them in the face they have decided to turn away and imagine only the best scenarios moving forward. This may work for a time, but how long will investors keep faith before optimism begins to run out.

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Disclosure:

I have received no additional compensation other than the Ethereum that Hade Technologies pays to produce Exclusive content



Comments (10)

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  • Tito
  • ,  Contributor
  • 14 August 2018, 02:08 pm

I might buy some puts on the SPX

   0   Reply (0)   Follow(437)  

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    Where is the bottom?

       0   Reply (0)   Follow(437)  

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      National Debt out of Control, Tax Cuts will never get paid for. NOT POSSIBLE.

         0   Reply (1)   Follow(437)  

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        Good for Gold

           0  

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          • John R
          • ,  Contributor
          • 14 August 2018, 11:08 am

          How about VXX?

             0   Reply (1)   Follow(437)  

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            not a bad option to play the volatility

               0  

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              • 3Kings
              • ,  Contributor
              • 14 August 2018, 11:08 am

              What about buying QQQ?

                 0   Reply (1)   Follow(437)  

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                If the tech sector keeps thriving it should stay relatively safe since it's weighted so heavily in that direction.

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                  Short getting BULLISH, Mark Cuban in Cash

                     0   Reply (0)   Follow(437)  

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                    strong dollar going to hurt multi-nationals severely in next Q earnings. highly unlikely they anticipated local cur collapse.

                       0   Reply (0)   Follow(437)  

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