The stock market’s recent rally has been impressive. The breadth and power of the stock market has expanded dramatically, thanks to corporate tax reform igniting more and more industries due to anticipated windfall profits. In fact, nine of the 11 S&P 500 industries are in overbought territory, with real estate and utilities the only two industries lagging.
The other thing that’s happening is that the fourth-quarter earnings season is unfolding. And while fourth-quarter results have been fantastic, a company doesn’t need to beat earnings estimates to bounce higher. It simply needs to provide higher forward-looking guidance. If it can do both, look out! Shares are headed for the sky.
Now, while we’re still in the early stages of this earnings season, let’s look forward for a moment. Normally, at the end of an earnings season, a lot of small- and mid-cap stocks will consolidate. I don’t think that will be the case this time around. I think a lot of those stocks will be guiding higher because the tax cuts will support even stronger first-quarter results in April and May.
The bottom line: The “melt up” is going to continue! In fact, I’m looking for fairly smooth sailing well into May. So, hang on and enjoy the ride.
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