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The good times keep on rolling with the S&P 500 index rising one percent on Friday, to close at a record all-time high above 1,667. The S&P 500’s sharp run-up has left it with a 16 percent return so far this year, while the U.S. dollar made a three-year high against a basket of currencies and hit a four-year high against the yen. U.S. consumer sentiment rebounded at the start of May, with the Thomson Reuters/University of Michigan’s preliminary reading on consumer sentiment rising to 83.7 from 76.4 in April—the highest level since July, 2007.

The Nikkei continued in nosebleed territory for the year, rising a staggering 3.6 percent last week to leave it at its highest level since December, 2007. Spurring the rally in Japanese stocks was first quarter GDP growth of 0.9 percent, which was the fastest-growing Group of Seven country over the period, prompting talk that “Abenomics” was starting to have an impact on the real economy. Encouraged by the strong performance of the Nikkei and other global indices, investors poured money into equity funds this week, with Japanese funds seeing record inflows.

Aggressive central bank action appears to be working its magic with strong share price gains across the U.S. and Japan. Cyclical sectors, which are more closely tied to the fortunes of the world’s largest economies, led the gainers on the week, with Financials outperforming other sectors on the S&P 500. Oil and copper prices ended higher on strong U.S. economic data, while corn rose this past week pushing up commodities broadly.

More good news may be on the horizon for the global economy with surging U.S. crude oil production. U.S. oil production rose the most ever last year. Escalating Canadian and U.S. crude volumes prompted the International Energy Agency (IEA) to predict that North American crude production will climb by another 4 million barrels per day by 2018, helping to alleviate growth-stifling energy price spikes.

The narrative on China appears to have changed rather dramatically in the last few years. As recently as five years ago, much of the investment community seemed to be cheering for China’s economic unravelling because of their increasing economic dominance. But with every country’s fortune more intertwined with the health of the global economy than at any previous time, investors are now hoping that China experiences a soft landing rather than a crash landing.

Until recently, China-watchers hopes were buoyed by very strong Chinese import/export data. But the strong import data may not be all that it’s cracked up to be. The trade data between China and two of its largest trading partners (Japan and the U.S. ) just doesn’t jive, with what these two countries (and others) are saying they’re exporting to China and what China says it’s imported. While some of the data reconciliation errors can be resolved by examining shipments that have come through Hong Kong for tax reasons, the gap appears to be widening, not narrowing, over time. This will likely put pressure on both the Australian and Canadian dollar, two big commodity exporting countries.

While a sense of euphoria seems to have swept over the markets, the sharp run-up in equity prices has some investors wondering if the melt-up in stock prices will be followed by a meltdown. With the price/earnings ratio (P/E) of the S&P 500 now at 15.6, above the long-term average of 15 times, many are wondering how much farther the multiple expansion story has to run.

In fact, my work utilizing data back to 1954 suggests that whenever the market has returned 10 percent or more with a P/E over 15 times, the following year the S&P 500 returns just 2.3% on average, while the multiple contracts by almost a full point.

One marked difference from previous cycles is that this time around the average payout ratio on the S&P 500 is 32.8 percent versus a long-term average of 46 percent—suggesting that future investment returns may come from dividend increases and share buybacks rather than through multiple expansion. My strategy is to continue to over-weight high-quality U.S. dividend paying stocks throughout the summer as the odds of a pullback in the markets appears to have risen.

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