It’s a busy week for earnings and Tuesday will keep the U.S. consumer in focus.
On the economic data side, Markit’s preliminary readings on services and manufacturing activity in October should be the highlight. Friday’s first estimate of third quarter GDP will be the week’s only major economic data release.
Investors will also keep an eye out for any headlines regarding President Donald Trump’s pick for the next chair of the Federal Reserve, with Trump telling reporters on Monday that he is “very, very close” to making a decision on a nominee for the role. Prediction markets currently expect sitting Fed governor Jerome Powell to be nominated for the role.
R.I.P. the good times?
Yahoo Finance’s Sam Ro wrote Monday that Goldman Sachs’ top equity strategist, David Kostin, has warned about “peak growth” and a poor setup for the stock market over the next couple of quarters.
This follows the University of Michigan’s latest consumer sentiment survey indicating that economic conditions right now are “as good as it gets.”
Taken together, some investors could see these as signs of trouble ahead for stocks. Kostin, for example, noted that average S&P 500 returns over the three- and six-month periods that follow the “peak growth” conditions he cites are, on average, negative.
Many investors also see tax reform hopes as propping up the market right now, a view at least loosely held by Treasury Secretary Steven Mnuchin who last week said failure to pass tax reform would send stocks tumbling.
Treasury Secretary Steven Mnuchin warns that markets need tax reform to happen or else stocks will sell off.
The enduring logic of markets, ultimately, is that one need be greedy when others are fearful and fearful when others are greedy. Too many positive signs, then, become a collective negative.
Charlie Bilello, director of research at Pension Partners, tweeted out Monday a series of stats that will likely make those looking for too many good signs in markets right now even more nervous.
The S&P 500, for instance, has not traded more than 3% below an all-time high for 242 consecutive days, the longest stretch in history. The benchmark index has also not fallen below its 200-day moving average since June 2016, the seventh-longest run in history. October is also still on track to be the least volatile month in history with just six trading days left.
That any or all of these conditions — “peak growth,” low volatility, bullish trends — are negative for investors requires that one see the current market and economic environment as not normal. We know that stocks don’t go up in a straight line, the economy doesn’t grow unimpeded forever, markets don’t ignore any and all risks indefinitely.
But is a gridlocked political environment, steady but slow growth, and stocks that remain attractive given interest rates necessarily an environment to fear? As Michael Hartnett, a strategist at Bank of America Merrill Lynch wrote earlier this month, the “best reason to be bearish in Q4 is there is no reason to be bearish.”
Which sums up why the seemingly benign environment of today is a cause for concern on its own. The investing business in essence compensates advisors to worry and so too many good things becomes a bad thing. So the market and economic data says the good times are happening right now. It was fun while it lasted. Or rather, while it lasts.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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