Enjoy the Stock Market Rally Until These Bellwethers Sound the Alarm

Shah Gilani|August 25, 2020

Ever wish for an “endless summer?”

Of course, you have.

Ever wish for an endless stock market rally?

Of course, you have.

Well, at least one of your wishes has come true.

Now here we are again, facing the end of summer and wondering how many more days, weeks, months, quarters, years, decades the market’s going keep on rallying.

I’ll save you the wondering, the answer is the market’s going to keep on rallying. Until that is, one, or two, or three things happen, either by themselves, but more likely, in conjunction with one another.

Here’s what they are.

But first, speaking of endless rallying, the Nasdaq Composite made another all-time high last week. I know, boring, right?

The S&P 500 also made a new all-time high last week, which was much more exciting, except for how expected it was.

The Dow’s been the laggard, but it’s getting there too.

What happened to spur new highs last week was another new high for Apple Inc. (NasdaqGS:AAPL).

The stock rose 8.2% last week, propelling the Nasdaq Composite, of course, to higher highs, and propelling the S&P to a record since Apple’s move accounted for 60% of last week’s 0.7% upside move for the S&P 500.

Here’s the first thing to watch out for: Apple and the FAANG+Microsoft gang getting tired.

I remember when an 8.2% move in a stock took a week or a month, 30 years ago, maybe a quarter. Now even the biggest company in the world, worth more than $2 trillion, yes, I mean Apple, can move 8%, 10%, 15%, and more in a week, hell, the biggest stocks in markets can move that much in a day.

And that’s the problem folks.

If stocks can move up that fast, and we know they can, and they can take benchmark averages up that much in a couple of days, or a week, and keep propelling them higher, that’s magic, and some black magic.

Valuations, in almost all terms, in almost all metrics, of the leadership stocks that’ve made this rally seem like a dream, are stretched into thin air, and getting thinner.

In Wednesday’s Total Wealth piece, I’ll cite some of those metrics and compare what’s happening to a handful of stocks today to what happened to another handful of stocks in 2000.

You remember, don’t you? No? I’ll remind you, and you’ll thank me for it by the end of the year.

Stock valuations are a bellwether. Whether you pay attention to the levels I’m going to warn you about, that’s up to you.

Another bellwether is the bond market, make that bond markets. The corporate bond markets for investment grade bonds and junk bonds. The Treasury bond market. International sovereign bond markets and bond derivatives markets.

Newsflash, they’ve been on fire, now they’re cooling down. And they’re trying to tell anyone who’s watching, anyone who understands that liquidity doesn’t equate to solvency, that something’s going to give.

In Friday’s Total Wealth, I’ll name names, give you levels to watch, and really lay out the bond markets for you.

And there’s “retail.” Retail is a bellwether, you didn’t know that, did you?

Next week I’ll explain how retail and what retail is telling us about the economy, and more importantly, about the stock market.

Your Capital Wave Forecast this week and next week are going to be about capital flows, some which will blow your mind, and over the next five months, possibly blow a permanent hole in your pocket, if you don’t know how to measure the winds.

But you will, so don’t worry.

Until then,

Shah