Stock market activity over the last year has been impressive and the resultant gains have left many investors in a defensive position. Specifically, many analysts have made suggestions that indicate the S&P 500 and the Dow Jones Industrials could be nearing an important top, and this is why markets will be assessing the relative corporate strength that is seen in their underlying business performance.
Corporations are now encountering changing expectations with respect to the likely earnings results that will be seen into next year. This is why companies have grown product branding and dynamic gift promotion exercises for customers. Tax reform and low global interest rates continue to support the outlook. There are still many questions that have not yet been answered in terms of the ways certain political factors and congressional votes will unfold over the next several quarters.
Given the current state of the market and its valuation, guidance within individual companies will only become more important, as this will become the best indicator of performance strategy in the medium term.
The best way of assessing performance in the world’s largest corporations is to view activity in the S&P 500 benchmarks, and these can be found in several regions around the world. Global stock trends tend to work in tandem, and a rising tide can lift all boats if there is strong positive sentiment in these benchmarks. In any case, we will probably need to move back toward the moving averages in the S&P 500 in order to truly propel new bullish runs higher that are sustainable.
We have already seen some of this in the early parts of this month in the drop in the S&P 500 back toward 2,565. The declines were arguably prompted by political stalemates with respect to corporate tax reform and pro-growth policy agendas but if we do start to see more progress in these areas, those declines will start to become less apparent.
Currently, the S&P 500 faces resistance at 2,595 and since we are now heading into the holiday sales season, it will not be surprising to see further rallies through here as long as sales after Thanksgiving events do not disappoint. The positive outlook will only need to be reconsidered if markets fall back through 2,565, as this would signal that a near-term top is now in place at the prior monthly highs.
