As the world focused on China and the crude market declined in August and September, investors entered the month of October with all the anxiety associated with global turbulence. But something happened which very few investors could have expected: The bulls returned with a vengeance and the market soared almost 10 percent in just one month. October became "Rocktober."
I have been saying for a while that the foundation is being set for a melt-up in stocks and that if the U.S. market is healthy, the rest of the world will be just fine. It seems the rest of the investing community is finally coming to grips with the notion of lower input costs, stable inflation, cheap money and solid corporate earnings being good for stocks. We witnessed a "flash correction," which took the market down with such intensity that most professionals didn't recognize the opportunity at hand. The financial world had been waiting for a pullback which gave them a comfortable point of entry and most missed it. In fact, the cash sitting on the sidelines has not yet moved.
If anything, the velocity of the move in equities, which brought them down roughly 10 percent, sent capital to the bond market for the purposes of capital preservation. This has left even the best of portfolio managers in a dilemma; they find themselves underinvested in an equity market which is poised to once again make a run at new all-time highs before year end. Rocktober will give way to the season of "chasing returns." The last couple of months of the year will be a period in which we witness the upside panic -- October was the beginning. Don't expect 10 percent per month, but another 10 to 15 percent before year end is realistic.
The real reason for the sudden move higher in equities is that the market has found new leadership in "new" technology stocks. The entire world is going through a generational shift right before our very eyes, as we witness "the cloud," and all its ancillary effects, change our lives forever. New technology is reshaping the way we do everything and Tech America is leading the way. Energy, communication, payments, shopping and every industry in between have all being vastly changed by this technological disruption which, in hindsight, could make the industrial revolution look small in comparison.
The digital age is upon us and the U.S. is playing the role of the global leader. The jobs which will serve this shift are being created daily. Technology, much like capital, goes to where it is treated best. Anyone associated with the tech world knows U.S. laws will protect them better than anywhere else in the developed world. Whether it be big data or even trading the cloud itself (UCX), innovation has led to efficiencies never thought possible before. Stocks were searching for leadership over the last year and they finally found it in new tech!
So as we listen to predictions that the end of the world is near, we should look at our smart phones and ask, "Really?" On second thought, let the bears fearmonger all they want, I'll just read it on my mobile device while I trade my account and video chat with my children.
Commentary by Jack Bouroudjian, CEO of Index Futures Group LLC, a registered independent broker, and CIO of Index Capital Partners, a registered commodity-pool operator. He was also a three-term director of the Chicago Mercantile Exchange and founder and advisor of UCX (Universal Compute Exchange). Follow him on Twitter @JackBouroudjian.