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There are two clear camps regarding the outlook for the stock market at the current time. On one side of the aisle there are the bulls, who contend that the recent break to fresh all-time highs (a) was driven by expectations for an improving economic and earnings picture, (b) accompanied by impressive internal momentum both here at home and abroad, (c) represents the resolution of the trading range that had been in place since mid-2014, and (d) is expected to continue (after the requisite short-term pullback, of course).

Our heroes in horns also point to a study done by Ned Davis Research which shows that breakouts to new all-time highs that have occurred after cyclical (aka "mini") bear markets have tended to stick and lead to further above-average returns in the ensuing 3-, 6-, 9-, and 12-month periods. As such, investors seeing the glass as at least half full have an upbeat outlook for their holdings in the coming year.

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Then there are those with raised eyebrows. And I'm not talking about the permabears, who always think the sky is about to fall and have never seen a stock market rally they liked. No, I'm talking about some very big name, high profile investors that collectively manage trillions of dollars of "other people's money."

The latest to express concern over the current state of the stock market is Blackrock CEO, Larry Fink. Cutting to the chase, Fink told a CNBC audience yesterday, "I don't think we have enough evidence to justify these levels in the equity market at this moment."

Fink joins other big names such as Janus bond guru Bill Gross, Oaktree's Howard Marks, and Doubleline's Jeff Gundlach (who is really more concerned about the state of the bond market than stocks) on the bears side of the aisle. However, it is worth noting that these high profile investors generally don't make a habit of making market calls.

Blackrock's CEO didn't mince words yesterday, making his stance clear. During the CNBC interview, Fink said extraordinary central bank asset purchases has been inflating stocks prices. "I don't think we should at new [stock] highs," he said.

So there you have it. On one hand you have a positive macro view of the world with history suggesting the bulls should be given the benefit of all doubt. And yet on the other, you have high profile guys fretting publicly.

While I do NOT believe in making market calls and prefer to stay in line with the state of the evidence, I do think it is interesting to note what some of the really big boys are saying right now. As always, time will tell which side of this argument will come out on top. Personally, I'd be betting on the bulls and buying the dips - at least for now.

Turning to this morning... Sadly, at least 84 people including 2 Americans were killed in Nice, France while watching Bastille Day fireworks on the French Riviera. Francois Hollande said, "There is no denying the terrorist nature of this attack" and that his country continues to be "...under threat of Islamic terrorism." On the economic front, China's GDP came in a bit above expectations overnight. Here at home, Retail Sales in the were reported above expectations as sales at U.S. retailers rose by +0.6% in June, which was above the consensus estimate for an increase of +0.1%. The so-called core sales total roes a larger-than expected 0.5%. In addition, the Consumer Price Index rose by +0.2% last month. Over the last 12 months, the CPI has risen 2.3%, which is up from last month's 2.2% and the highest level seen 2008. On the earnings front, Wells Fargo results were in line with expectations while Citi's handily beat the estimates. Futures in the U.S. have improved modestly on the economic news and now point to a slightly higher open on Wall Street.

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of Global Central Bank Policies
      2. The State of U.S. Economic Growth
      3. The State of the Earnings Season
      4. The State of the Stock Market Valuations

Thought For The Day:

"Luck is the residue of design." --Branch Rickey

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Here's wishing you green screens and all the best for a great day,

David D. Moenning
Founder: Heritage Capital Research
Chief Investment Officer: Sowell Management Services

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