So much for the near-term doom and gloom…

Three weeks ago, major indices were left reeling from the UK vote to exit the European Union.  Global markets lost $3 trillion in two trading days.

According to some “experts,” all hope was lost.  Then markets once again proved to be resilient.

Now up nearly 1,500 points from a low of 17,063, the Dow Jones Industrial average hit an all-time high of 18,506.  The S&P 500 rallied 177 points. 

The NASDAQ roared 471 points from a low of 4,574. 

As for gold, it last traded at $1,329 – a nearly $40 drop from recent highs. 

While the press attributes the drop in gold prices to a surprise decision by the Bank of England to stand pat on interest rates, gold fell hours before England made its announcement.

Instead, investors are rotating out of safe havens, like gold, as markets cheer a positive June jobs number, and as corporate earnings have been better than expected.  In fact JP Morgan surprised with a $6.2 billion profit and revenue of $25.21 billion. 

Even Alcoa beat on its top and bottom lines the other day, reporting adjusted EPS of 15 cents a share, exceeding nine-cent estimates.  While revenue did fall 10% year-over-year to $5.3 billion, that number was still higher than estimates.

With those results, there are hopes that an earnings recession may be ending.

Recent elections in Japan may mean more stimuli there, as well, after Prime Minister Shinzo Abe won.  At the same time, the UK vote has created a much more accommodative European Central Bank and U.S. Federal Reserve.

In addition, asset purchases by central banks are now challenging 2013 highs, suggesting that rallies in equity and credit markets could continue, as noted by Market Watch.  Even though investors have pulled $133 billion from global equity funds this year ($80 billion was from U.S. equity funds), the rally continues because of central bank intervention.

It’ll be interesting to see how long this can last. 

However, at new unprecedented highs, has the market rally run its course?

At the moment, markets seem to have ditched fear for excessive greed.

Experts warn that trouble may be brewing, as the S&P now trades at a 17.1 forward earnings estimate multiple. – its highest point since the bull market began.

Other experts are concerned that the Federal Reserve could soon raise interest rates, and an interest hike could take the wind of out of the market’s sails, for a brief time.   

As UK fears wane, and uncertainty following a shockingly weak May payrolls report decreases, the Fed may be ready to act.  “The U.S. economy shouldn’t sustain much damage from the Brexit vote and may warrant as many as two interest rate increases before the end of the year, “ noted Federal Reserve Bank of Philadelphia President Patrick Harker.

However, other members of the Federal Reserve just expressed the view there was no hurry to raise interest rates, despite signs of near-full employment.

At the moment, though, we are witnessing history, as markets explode to all-time highs.

We will enjoy it, while it’s here.  The one thing we have learned over past couple of years is that volatility will continue in the market.  As a result, we are currently addressing several oversold stocks trading at less than fair value for the next issue of The Cheap Investor.

 

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