Are You Cautiously Optimistic About This Rally? Join The Club

The market’s rally since Brexit has been remarkable, with the S&P 500 trading up around 8.5 percent from Brexit lows. This has led some economists to feel a little more optimistic.

Brian Dolan, Drivewealth’s head of market research and head of financial education, is one such economist.

“It’s really just a question of how much longer this can be sustained,” Dolan told Benzinga. “A number of things give me cause to caution, but I can't deny that this is a persistent move higher. Markets are pricing in stimulus down the road.”

Separation

Dolan noted that the separation between commodities and equities is an imperative factor when deciding how the attack the current market.

“One of the barometers I focus on is commodity space. There is a significant divergence between commodities and equities markets. Commodities have not broken down yet; they peaked in early June and have declined since then.” he said. “It suggests to me that stocks are overextended at this point.”

He added that the Average Directional Index (ADX), an objective value of the strength of a trend, is nodding in the direction of a continual S&P breakout, but he warned against jumping in too fast.

“It's not there yet, but it's moving in the right direction. This could be the beginning of a further significant rally,” he noted.

Biggest Roadblock

Dolan believes the biggest roadblock for the S&P soaring even higher is a possible hike in interest rates.

“U.S. numbers have been quite solid. It’s really difficult to downplay outlook for the U.S. economy. The only risk is that the Fed becomes more overt in its move to raise rates in September.”

In order to be less cautious towards the markets, Dolan wants to see an increase in earnings and wages.

“I need to see a more pronounced pickup in earnings and wages. It's in the right direction but still not enough to say the consumer has opened up their wallet and is willing to spend more aggressively.”

As far as price targets, Dolan sees $2,150 as a breakdown point, and is targeting $2,190 on the upside.

“It’s very tough to swim against a persistent tide like this, so don't try that. But do be very protective and actively taking profits," Dolan said.

Posted In: NewsCommoditiesGlobalEconomicsExclusivesMarketsMoversInterview
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