Stock Market: The New Normal

Today the U.S. stock market climbed on a new all-time high, exceeding the all-time high it had reached yesterday. And the Dow Jones broke the mark 15.000, the S&P 500 crossed the line 1.600. I reckon that we will see a lot more all-time highs in the near future and the years to come. Record stock prices are the "new normal".

I borrowed the term "new normal", which is now very popular in the media, from Mohamed El-Erian. This co-chief investment officer at the gigantic bond fund Pimco predicts an era of lower returns, heightened government regulation and shrinking U.S. clout in the world economy following the 2007-2009 financial crisis (sfgate.com).

I consider this popular claim just as drivel. Those skeptics are just extrapolating the development of the recent years into the alleged future - a pathetic method.

Today we got news that the U.S. created 165.000 new jobs in April ( 2.077 million over the last year calculatedriskblog). This rate of job growth is perfect. The job growth is fast enough to fuel the advance of consumer spending (with the help of the ongoing stock market rally and the recovering house prices). It is also fast enough to induce continuously rising company profits (with the help of the technological progress and uprising emerging markets).

Otherwise the job growth is not fast enough to sparkle a huge jump of interest rates and commodity prices. If the job creation would run hot Ben Bernanke and his Federal Reserve would abandon the low interest rat policy soon and the commodity speculation would drive oil prices to new highs.

I reckon that the growth of the U.S. economy will reaccelerate in near future because of the new industrial revolution (Internet, business software, robotics, genetic engineering, nanotechnology and more) and the catching-up process in China & other emerging markets. Helpful also is the reduced government influence which means less bureaucracy and more scope for private investments.