The chorus of economists and stock market pundits claiming a bear market is imminent continues to increase. In recent weeks prominent mutual fund managers have joined in claiming that everything from stocks, bonds and real estate are “overvalued.” Two weeks ago several major Wall Street brokerage firms began warning that “winter is coming” for the stock market. I am keenly aware of the concerns being expressed and in fact, I have them myself.

If you overlay the above warnings with the widespread concerns about how the Trump administration deals with North Korea, Iran, NAFTA, health care, tax reform, infrastructure, trade deals with China, the border wall, immigration, and the debt ceiling, you have the makings for a lot of headline related volatility in the financial markets. And volatility is exactly what we have been getting the past couple of months. Back on May 17th, the day I call impeachment Wednesday, the Dow Industrials declined 372 points. Two weeks later the Dow was at a new all-time high. And this has been the pattern–a headline related, emotional reaction that has nothing to do with economic fundamentals, and then a resumption of the uptrend in stocks. I fully expect this pattern of two steps forward, one step back to persist indefinitely until the end of September-early October.

And this leads me to the point of this missive: we must distinguish between headlines and fundamentals. As of now, there is very little factual evidence to suggest the stock market is about to enter a deep freeze. The tools we use to measure supply and demand for small, mid, and large cap stocks have yet to exhibit the historical early warning signs that would suggest the beginning of the end for the bull market. This quantitative analysis is further confirmed by the fundamentals.

Data points to consider include: 1) Second quarter GDP was revised UP to +3%. 2) July employment data was positive. 3) Retail sales for July came in at +4.2% 4) Consumer confidence is hitting new highs. 5) Productivity for 2Q17 was +1.5% vs. 1.3% expected.

On the other hand, Europe doesn’t look so hot. Recent data includes: 1) Swiss GDP came in at +0.3% in Q217 vs. +1.1% in Q117. This was the lowest rate of change since 2009. 2) Italian Retail Sales came in at 0.00% in July (yes those are zeroes) vs. +1.5% in June. 3) Retail PMI in France is almost in the contraction zone at 50.4 in August vs. 54.1 in July. 4) Europe has an aging population, thus a lower capacity to consume in the years ahead vs. the US. 5) On a positive note German Industrial Production came in at 4% YoY in July vs. 2.7% prior.

In recent months many analysts have been advising the purchase of European stocks because they are cheaper vs. US stocks. Now you know why they are cheaper and in our opinion are likely to get even cheaper as weakening data continues to dribble out. So to be clear, Europe is NOT the United States. Therefore we continue to like Large Cap, US growth companies.

In recent days North Korea has flared up with their H-bomb testing and threats of sending “gifts” to the island of Guam. This bears watching, but I think not much would change unless military action of some sort has the capacity to change the positive trajectory of the US economy.

Corrections are a normal part of a healthy bull market. There is always some issue off to the side that grabs the headlines and throws confusion into the mix. Investors should keep this in mind because if a pullback develops in the weeks ahead, it will serve primarily as a buying opportunity.

Feel free to get in touch with any questions or comments.