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Reflections

Nasdaq & S&P 500 At A New High – Here’s What It Means

Chris Lee Susanto, Founder at Re-ThinkWealth.com

27 July 2019

Nasdaq & S&P 500 At A New High article

As of today, the Nasdaq & the S&P 500 has hit a new high.

Recently, the US economy showed that GDP grew 2.1% annually in the second quarter of this year. It means that consumer is still spending because the US GDP is still growing – despite the tariifs that has been implemented by Trump. This positive news is probably one of the catalyst that have been driving the Nasdaq & S&P 500 to a new high.

Let’s break down what the Nasdaq and S&P 500 reaching a new high means to us as investors.

Now, The stock market in the US is hitting a new high despite the trade war with China still looming with no deal at sight yet. 

And this is all under the backdrop that the Fed is going to lower interest rates by 25 basis points. In a way, interest rate cuts will boost the economy, and it is a good thing. In another viewpoint, based on the latest memo called “On The Other Hand” by Howard Marks, the interest rate cut may not be necessarily a good thing.

And according to FactSet, so far more than two-thirds of companies that have reported earnings so far beat the earnings. More than two-thirds of the companies beating earnings shows that the earnings of companies so far this year are not too bad. That means that while the stock market hits a new high, they are generally supported by earnings growth.

So this leads me to ask, is the bull run in the US stock market sustainable?

I think in general if the stock market bull run is steadily supported by earnings growth, there will not be a bubble. It will still be sustainable.

But the higher the stock market goes, the riskier it is.

So in a way, we can also say that the higher the US stock market goes, the less sustainable it is. 

One thing about the market that I learned so far is that the market is generally unpredictable – this unpredictability is the one thing I can certainly predict about the market.

With the understanding that the market is unpredictable, I believe the general principle should be to be cautiously optimistic – and be even more cautious as the market goes up, and be more optimistic when the market goes down. Of course, this is easier said than done. But if we do not make the right decision and do the right thing, we will be just like everyone else. And remember, the key to stock investing outsized success consists of two parts, the first is to go against the majority view and the second, is that we have to be right.

With the Nasdaq & S&P 500 hitting new highs, my focus on the next couple of weeks would be on re-evaluating the companies in my portfolio to see which are the companies I feel is already overvalued or if there are a better price to value proposition elsewhere. 

And if you have not read the latest memo by Howard Marks “On The Other Hand,” I highly recommend you to read it. I read it earlier, and I learned many things.

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Disclaimer:

The information provided is for general information purposes only and is not intended to be a personalized investment or financial advice.

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