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posted on 02 October 2017

Bull Run Spurred On By Tax Cut Hopes

Written by , Clarity Financial

Let's pick up where we left off last week:

"The short-term analysis of the market remains broadly positive with both the ongoing bullish trend and recent break above 2500 remaining intact through the close on Friday. As I noted last weekend:

As shown below, the market is pushing a short-term 'buy' signal. However, now at 2-standard deviations above the 75-dma, as seen previously, the market likely has limited upside from here."

The breakout, of course, was driven by continued hopes of tax cuts/reforms from the White House as details of the latest proposal from the House Ways and Means Committee were released this week. (Click Here For Details & Analysis)

While the recent breakout is a continuation of the "hopes" for legislative agenda to boost economic growth, there has actually been very little accomplished on that front. Nonetheless, with over $2 Trillion in Central Bank interventions flowing into the markets since the beginning of the year it is not surprising stocks have remained in a strong bullish trend.

More importantly, since the March 9th lows, the bull market has surged more than 268% with no decline greater than 20% along the way. Importantly, the correction in early 2016, did not violate the trend line from the 2011 lows which keeps the current market defined to a singular bull market.

This bullish backdrop keeps portfolios allocated towards equity risks currently. With the breakout above 2500, we have:

  1. Increased equity allocations in new accounts that were underweight.
  2. Added bond exposure on the push higher in rates which suppressed bond prices in the short-term.
  3. Shifted cash management accounts into the cash allocation strategy increasing yield to 2.0%

Overall, models remain fully allocated toward equities as there has been NO indication currently the bull market has come to an end.

However, don't mistake the current bullish stance as a long-term position.

Investing simply doesn't work that way.

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