S&P 500 level as of publication: 2,667 points

Thinking that historical performance is an indication of future results is one of the worst mistakes an investor would make. Thus, believing that the stock rally may be coming to an end just because it’s the longest streak in history may result in missing the opportunity of riding the coming rally. 

We believe that there’s a decent probability that the stock rally may continue going forward as the current corporate environment is one of the best in the last 10 years. Not only the new tax law will increase earnings, but the S&P 500 sales, a figure that cannot be inflated, grew more than 7% in 2017, the highest growth rate since 2011. While this alone is not a reason to be bullish as sales growth for the S&P 500 has been highly volatile over the years, we believe that accompanied by lower taxes, higher wages, and wider deficits, the S&P 500 may have further room to rise. 

Since the beginning of the year, investors were questioning whether valuation is reasonable, but the reaction of the stocks that reported earnings in the last two days (Amazon, FB, AMD, Twitter, Intel, Chipotle…) made it obvious that investors were in need of one assurance that 2018 sales growth would continue to be impressive given tough comps, and that’s what the companies that reported earnings gave. 

We believe that the market would continue to surprise investors by its stubborn bull rally, at least for the current year. While the 3% 10-year yield is worrying for dividend-paying stocks, we don’t believe that would have a material effect on the whole index as earnings/sales growth and share repurchases should more than offset the increase in Treasury yields. 

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