Stock Market Surge Continues Amidst Concerns

The year 2017 continues to be the year of the bulls on Wall Street.  The Dow Jones Industrial Average has already surpassed 40 new record highs this year, and the tech-heavy Nasdaq has seen 50 record highs since the start of the year.  Even the gut punch of Hurricane Harvey didn't stop the markets' momentum.

So what is driving the year-long surge?  There is no one easy answer, but a clear factor is the activity of big banks, according to Michael Smith, co-founder of Houston-based STA Wealth Management.  "That is the number one fundamental reason why markets are going higher, is because of the liquidity being put in by these banks," he says.  "The Swiss National Bank is the biggest buyer of Facebook, Netflix and Apple."

Nevertheless, as long as markets continue running at record highs, concerns about an inevitable "market correction" have taken root among some investors.  Smith recommends "stress-proofing" your portfolio to be prepared for a market downturn before it happens.  "Have you done the crash scenario, have you looked at a garden variety five percent correction---we used to get two five percent corrections in a year--what do you think the next one is going to look like," he says.  "If you know what it's going to look like, then when it happens you don't freak out."

As for what could drive the markets in the months ahead, there are several items worth watching.  One is the activity by the Federal Reserve, which could raise interest rates again in December.  Also, President Trump could decide to replace Fed Chair Janet Yellen when her term expires early next year.  Another factor that could drive markets down is the ongoing tensions with Iran and North Korea, and whether they lead to any international conflict.  However, Smith believes the bull market will likely continue into 2018 if Congress passes meaningful tax cut legislation before the end of the year.  "That's going to be a big cash boost to many companies and pass-throughs, so yes, I think you'll get a big boost in the markets," he says.

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