Sunday, March 31, 2013

Stock Market: On The Way To New Highs

Finally! Last week the S&P 500, the gauge for the U.S. stock market, climbed on a new all time high. Before that the Dow Jones and the Russel 2000, which represents small caps, had already reached record highs.

But this didn`t cause much applause. Instead the majority stays skeptical. Investors prefer defensive shares such as utilities and healthcare, reports the Wall Street Journal ( Those stocks are supposed to drop less if the stock market turns south again, but they usually rise under average in a rally. Bloomberg tells us that "companies in the Standard & Poor’s 500 Index are cheaper than at any record high since 1980 as individual investors shun equities" (bloomberg).

MarketWatch also referred to the fact that S&P climbed again on levels which the gauge had already reached in the year 2000 and then again in 2007 (marketwatch). Both events have been put out just as temporary peaks and have been followed by sharp recessions and stock market crashes. Skeptics call the new highs just triple peak and suggest that a new bear market (stocks falling more than 20%) may follow ("Who’s afraid of an S&P 500 triple dip?" marketwatch).

I believe that this skepticism is ill founded and that the stock market is on the way to new highs. I further claim that we are still at the beginning of a long term bull market that could be comparable to the stock market rally from 1982 till 2000.

My claim is mainly based on three arguments:

1. Company profits will continue their solid growth. During the recessions of the years 2001/02 and in 2008 companies restructured and reduced costs significantly in order to survive. Now they are much fitter and more efficient than before. I believe that this learning process will continue and translates into a long term trend of rising company profits.

2. We are experiencing a new industrial revolution.  Advances in Internet, mobile computing, 3-d-printing, robotics, nano- & biotechnology and other fields are reducing costs, raising efficiency and creating new markets.

3. We also are having strong tailwinds from the emerging markets. The catching-up process in China, India and a lot of other countries translates into high growth in large parts of the global economy that creates continuously rising revenues & profits for global companies like Starbucks, IBM, Caterpillar and other members of the S&P 500.


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