Sunday, April 5, 2015
Stock Market: Happy Easter 2015
Easter also stands for the begin of spring. The German literature has a lot of Easter poems which are referring to the seasonal issue. The most popular German Easter riddle is "Der Osterspaziergang" (the Easter walk osterspaziergang) by Johann Wolfgang von Goethe. It starts with the line "Vom Eise befreit sind Strom und Bäche" ("freed from the ice are rivers and creeks").
Goethe`s poem also describes the stock market. Since Easter 2014 the US stock market (S&P 500) gained around 11%, even that the market stagnated year-to-date. I believe that the bull market for stocks will continue. Inflation & interest rates are at record lows (even if the Fed could start hiking her interest rates in June). Companies are reducing costs & debts, getting more efficient & productive. I assume that in the coming months companies will respond to economic growth and their expanding markets. They will lift wages more than in recent years in oder to gain manpower for their expansion (Wal-Mart`s wage hike could be the starting signal). Therefore the growth of personal incomes in the US will accelerate fueling consumer demand.
The global economy is getting a lot of tailwinds from cheaper commodities. The sharp price drops for oil, industrial metals and some agricultures work like a gigantic tax cut. Companies have lower costs, meaning more money to invest (including into a rising labor force), and consumers have more money in their wallets. More jobs, faster rising wages and much cheaper gasoline should speed up consumer spending in the US significantly which will boost the global economy (US imports = rising European & Asian exports).
I also believe that the technological progress is fostering globalization. Emerging countries like China and India have easier access to new technologies which is promoting their transformation into modern economies (see for instance Alibaba). These processes are working together, creating global economic growth in the decades to come.
The positive macro trends (inflation, interest rates, consumer spending) and the continuously rising efficiency (thanks to technological progress like Internet, other software, robotics, 3D-printing and more) will translate into higher company profits - the engine of further stock market gains.