The market has shrugged off all kinds of bad news in the last 6 months setting 21 new highs since October. Can the Teflon Dow continue? On “Power Lunch” CNBC’s Bill Griffeth asked Hugh Johnson, Chairman and CIO at Johnson-Illington Advisors and Malcolm Polley, CIO at Stewart Capital Advisors.
Hugh said there have been 3 big (positive) surprises in the markets:
1. Corporate profits – We were looking at 8%. Looks more like 20% growth which is much stronger than expected.
2. Interest rates – We thought they would be around 5% on the 10 year treasury. They’re at 4 ½ % and that’s good news!
3. The level of liquidity going into the stock market –
"Those are 3 big factors and are driving the market despite all the bad news we’re been hearing," Johnson explained.
"I’m still going to stay fully invested in the equity markets (next year) because that’s where the return is going to be. Stay with the stock market there’s still good news out there."
Johnson might be bullish – but he still sees the economy growing more slowly next year.
“We like the energy and utility sectors primarily because they have good dividends. Next year with lower returns, dividends are going to count and that’s where you’re going to find them.”
Malcolm Polley added, “We need to look beyond what’s happening now or this quarter. We are really concerned about inflation. The Fed has been as clear as can be – they are more likely to raise rates than lower rates anytime soon – I think we need to pay attention to what the Fed is saying and not what’s happening, right now, in the marketplace."