Monday, March 10, 2014
Stocks: Why This Bull Market Could Have Many Anniversaries
A bull market is defined as a gain of at least 20% since a low, if the stocks fall at least 20% from a peak we call that bear market. The current bull market reached just the average length of historical bull markets. If stocks could repeat the rally from 1987 through spring 2000 than this bull market would live at least 8 years more.
I believe that the current bull market could even outrun the bull market from 1987 till 2000 (13 years). Many commentators claim that the stock market rally owes her existence only to the massive monetary stimulus programs by the Federal Reserve (QE1, QE2, QE3) and will blow out when the monetary stimulation ends. But those skeptics are too focused on the Fed and ignore other factors like the rise in company earnings. Profits for S&P 500 companies have climbed an average 21% a quarter since 2009, almost double the growth rate during the dot-com boom, writes Bloomberg (bloomberg). Thus, the stock market has just accompanied the climbing company profits which gained around 170% since 2009 (crossingwallstreet).
I am convinced that the observed rise of the company profits is a long term trend and will continue in the coming years. During the recessions of the years 2001/02 and 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 that companies will become even more efficient and productive which translates into rising company profits for many years to come.
My optimism is based on the observation that companies are benefitting from a new industrial revolution which we are experiencing now. There are accelerating advances in Internet, mobile computing, 3-d-printing, robotics, nano- & biotechnology and other fields which are all reducing costs, raising efficiency and creating new markets.
I also expect that the tailwinds from the emerging markets will come back soon. The catching-up process in China, India and a lot of other countries will continue and should translate into high growth in large parts of the global economy benefitting global companies in the U.S. and Europe.