By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Rocket Fuel for the Market

On the last edition of The Investors Edge, we had essentially round-tripped the tariff-induced selloff that began at the beginning of April.

Now that President Trump has announced trade deals with the UK and China, and Congress is rolling out its grand tax package, it has been like adding rocket fuel to a market that was already on the upswing.

The S&P is up nearly 5% in the past week, and the tech-heavy NASDAQ is up nearly 7%.

Animal spirits are running wild now that investors have come to realize that President Trump is more focused on positive outcomes than stubborn dogma when it comes to his economic policies.

So how high can the market go?  Well, it you were caught taking on too much risk heading into the recent volatility, perhaps you should consider taking advantage of this rally to lighten up on risk.

Nevertheless, long-term investors should consider how they want to be positioned for the next 10 years, not just the next 10 months, and once the bulls start running, the momentum can build over time – so don’t let fear or short-termism drive your decision making.

The stock market is all about expectations – it’s not so much what happens that matters, but what happens RELATIVE to what was expected to happen.

You might see a headline that a company reported earnings that were down 10% in the past quarter, yet the stock is up 5% on the news – how does that happen?

Well, it’s likely that investors and analysts had expected those earnings to drop by MORE than 10%.

Most people look at the world in terms of good or bad, but when it comes to investing it’s all about BETTER or WORSE.

Are things getting better or worse versus what is already expected.

Looking Ahead: Quiet Period Ahead

Now that earnings season is basically wrapped up investors will be focused on macro-level economic developments for clues to where the market’s headed next.

In looking at next week’s economic calendar, there’s not much coming on that front either.

In this quiet period, it’s very likely that the trend will be your friend.

Physics teaches us that an object in motion will stay in motion unless some force disrupts its current trajectory – the same concept tends to hold true in markets.

Just one caveat – just because nothing major is EXPECTED to happen in the next couple of weeks, doesn’t mean nothing will happen – remember it’s the punch you don’t see coming that knocks you out – so stay vigilant, because when it comes to markets, anything is possible.