By Mary Anne & Pamela Aden
The stock market has been very volatile. First, it broke several records. But then, the market got the rug pulled out from under it.
Many gloom and doomers are spooking stock investors talking about an upcoming crash and the similarities between 2000 and today. They feel the stock market is expensive and risky. Global growth is slowing, deflationary forces are getting stronger, and the stock bubble is ready to pop.
As you know, the stock market has been loving low interest rates (see Chart 1). That's been one of the main factor driving stocks higher.
Interestingly, following a period of low interest rates, the first interest rate hike doesn't normally hurt the stock market, historically speaking. With this bull market so strong over the years, it'll take more than a mild interest-rate hike to bring this market down, assuming it happens sooner rather than later.
Bullish, but cautious
Stocks remain bullish, and they're still poised to rise further. But the strong U.S. dollar is also taking its toll on stocks because it threatens economic growth and profits, so we could see a further downward correction before stocks head higher, which would be normal.
The big picture reinforces this, at least for the time being (see Chart 2). Here you'll see the Nasdaq, along with its leading indicator. Even though Nasdaq resisted below its old high of 5048 reached in 2000, the leading indicator shows that this level will likely be surpassed. probably in the months ahead.
As you can see, this indicator is starting to rise from a relatively low level. It's telling us Nasdaq has plenty of room to rise further before the indicator reaches the major high area.
This also tells us Nasdaq will likely soon break above the 2000 highs into new record territory. On the other hand, a decline below 4825 would signal that a more substantial downward correction is underway.
Stay with the trend
So for the time being, caution is warranted due to market jitters, volatility and economic vulnerability. For now, keep the stocks you have for as long as this bull market stays in force, but don't buy new positions at this time.