May you live in interesting times. Wait... you do! Though one oft misses the prosaic times of yesteryear.
Technological advances. Medical miracles. Mass media revolution. Untold wealth. Juxtaposed against war. Poverty. Zika. Terrorism.
Always yin and yang.
The ten-day, Brexit-induced rally that followed the two-day post-Brexit butt kicking was epic. In fact, it will go down as one of the strongest advances in history. Bespoke Investment Group crunched the numbers. Revealing how special it was. And what it might mean.
Bespoke deduced that the breadth of the S&P 500's rise was breathtaking: Including four different days in which more than 400 positions within the index rose. Which rarely occurs. Thoughout the 10-day span, the S&P 500's 10-day advance/decline reading was a mindblowing +2,362. Which is to say that there were 2,363 more stocks that advanced than declined. Equating to the very definition of momentum.

Bottom line? We just witnessed a market stretch for the record books. Breadth spreads of this quality and extent? Rare. And tend to lead to higher prices after a brief consolidation.
Leading to this week. In which we find market benchmarks to be overbought. Yet, following a brief pullback, precedent concludes that indices could move higher. In the face of weak seasonality. And difficult earnings. And the looming presidential election. Not to mention the idea that markets often peak in the third week of July. All of which is to say that contrarians are currently running the show.
The S&P 500 sits a scant 1.8 percent above its all-time high. And many broader measures remain below their May 2015 highs. Seeing as most investors thought the market would not break through all-time highs until after the election and yet, here we sit, simply leads us to believe that a move higher becomes all the more probable.
Of course, economics could intervene.
Declining business investment continues to hamper the nation's economy. Which posted an embarrassing annualized Q2 GDP growth of 1.2 percent. Establishing a course for the worst GDP showing since 2010. Just as the rate of homeownership fell to its lowest level, 62.9 percent, in 50 years. All of which arrives on top of the overly positive assertions from last week's Democratic National Convention. So underscoring this nation's propensity to confuse dynamic oratory with reality.
The U.S. economy, following sixteen years of credit cycle addiction, has reached a point of diminishing returns. Further credit injections offer limited benefit. As they proffer a nominal impact on GDP. With every $10 of new debt producing $1 of new GDP. Hardly worth the bill we're preparing to hand our children.
That being the case, then the credit cycle could be nearing an end game. Which would bring the economy to decelerate further. Regardless of last week's predictable laudations from Philadelphia.
While consumer spending has risen, the negatives continue to outweigh the positives. As inventories declined. Housing markets dropped. Business investment declines. And still the middle class awaits something akin to a recovery.
Much of the recent rally has been predicated on the idea that the Fed will sit this year. Choosing not to raise rates until the economy explicitly reveals a positive glide path. While some Fed watchers think a September rate hike possible, we doubt it. As the Fed is loathe to play politics. And a hike so close to an election would, for all appearances, seem overtly political.
Accordingly, we expect the next rate hike in December. Though we've been wrong before.
Finally, I watched portions of both conventions these last two weeks. It was exhausting. Watching symbiotic political parties disparage one another without proffering any real solutions to the nation's growing problems.
Trump? Guy's a blowhard. But, what the media labeled as "doom and gloom," I took to be a reasonable assessment of a litany of issues that currently impede America's progress. He yelled a lot. But he yelled an honest assessment of the nation's multiple Gordian Knots.
Clinton? There were times when I wondered about whom the week's orators were speaking. During her speech, I tallied over 40 special interest groups to which she alluded some type of benefit should she be elected. Culminating in free college tuition for the middle class. At which point I shut off the television, went upstairs and kissed my sons. Ruefully pondering the growing burden an irresponsible nation has created and willingly seeks to impose upon its youngest and most innocent.
Last June, the non-partisan Congressional Budget Office (CBO) warned that the lack of resolve to tackle our growing debt problem could result in the nation's next financial calamity, here. Yet, our politicians continue to toss out entitlements like confetti from a parade float.
Never have I seen politics and reality less connected.
Mario Cuomo said that you campaign in poetry and govern in prose. Yet we see today's politicians campaigning on propaganda. Then governing in repose. Failing to set decisive courses of action. Lacking the will to wage an efficacious battle within any of the arenas that most the nation. Its economy. Its security. Its cultural fabric.
Friday's weak GDP reading may bring the Fed to delay rate hikes till next year. Which markets will applaud. But it also underscores the tepid economic stew for which policy makers seem to have no answer.
Since the post-Brexit rally stalled three weeks ago, stocks have consolidated. Ignoring weakening oil prices, weak high-yield bonds, declining Q3 earnings expectations and a pullback in long-term Treasury yields. Consequently, we've seen the dullest market in 21 years, reports LPL Financial. As Friday marked the twelfth consecutive day the S&P 500 closed within a one percent trading range. That's a tight trading range.
Historically, such patterns resolve themselves with a sharp move lower. All the more likely as we enter what has historically been a bad calendar period for stocks (August through October). Not to mention the most contentious U.S. presidential election in modern history.
However, don't forget that conventional wisdom has been wrong on nearly everything throughout this already colorful year. So why not this time? And as most everyone expects stocks to go lower, don't be shocked to see the masses disappointed, yet again, as stocks continue their ascent.
Yet, many continue to ask how can the S&P 500 trade at all-time highs when earnings have been on the decline?
Great question. The answer for which can be found in recent research by Bespoke Investment Group.
With 14 percent of the index having reported Q2 earnings, 69 percent have beat consensus EPS expectations. Just below the 70 percent one-year average. The blended revenue growth rate sits at a slightly improved-0.5 percent. And 60 percent of companies in the index that have reported have beat consensus revenue expectations.
Driven by weakness in the energy sector, the S&P 500's trailing four-quarter earnings have declined for six straight quarters. Analyst estimate that streak will end in this second quarter. Still, it's been an extended period of weak earnings. With only one other streak since 1940 where earnings declined for a longer period of time (Q2 2007-Q1 2009) and only one streak that was of equal length (Q4 1950-Q4 1952).
The average return during previous earnings troughs was a gain of 11.97 percent. With positive returns more than 70 percent of the time. Which is why the market is a forward-looking pricing mechanism. And this year's S&P 500's performance during the current earnings drought bears this out.
Traditionally, the year during which the S&P 500 exits its streak of declining earnings, the index's average returns are actually weaker than its performance during the actual period of weak earnings. Go figure.
Moreover, in the prior fourteen periods, the index performed better during the period of declining earnings than during the one year after the weak earnings streak ended.
Bespoke's conclusion? While investors usually look at current earnings to determine what the market might do, the market is usually a step ahead. Despite investor fears, why would this time be different?
So stay tuned.
Weekly Results
Major indices finished up this week, DJIA gained 0.60%, S&P 500 rose 0.43%, small cap stocks gained 0.93%. 10 year Treasury bond yield rose 13 basis points to 1.59%. Gold closed down $14.02 per ounce, or 1.04%.