Tuesday, September 5, 2017

Nuclear War Threat

We got the North Korean nuclear bomb test and it was good for a 6 point gap down on the SPX.  Is anyone really surprised when the stock market shrugs off geopolitics?  This happens over and over again and investors still act like the market is acting irrational.  North Korean bomb tests are nothing new, and neither are their missile launches.  The only variable that's changed is Trump and general public mistrust of his judgement and temperament. 

The reaction in the non-Asian equity markets clearly shows that North Korea is a non factor.  The overnight trader overreacted again as we are now trading higher than the overnight range in the regular trading hours.  Oh and look at the bond market.  It is screaming higher, even when equities are basically flat.  All North Korea has done is provided corporations lower interest rates to sell bonds at.  So you have a net positive from a liquidity perspective. 

It's going to take something other than geopolitics to take this market down.  You will need to have a weaker bond market or a weaker economy to bring down this bubble.  Right now, economy is just strong enough to maintain low single digit earnings growth while keeping the Fed easy.  Real GDP growth at 2% is Goldilocks, post 2008 style.

If there is a dip down this month, anywhere close to 2420, I would buy that dip and ride it to SPX 2500+.  There is still some juice left in this bull market, as the Republicans will be desperate to get some kind of tax cut package through Congress to put some points up on the board.  After the debt ceiling, that catalyst becomes the main focus of the market, so expect a better tone to the market and higher prices once we get to late September.  In the meantime, hope for a little drop to get in long for the ride higher.


MM111 said...

2448 low enough?

Market Owl said...

I am waiting for lower. 2430s at least. We'll see. But I am bullish looking beyond the next 2 weeks.