Sunday, March 27, 2016
Stock Market: Happy Easter 2016
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").
Right on time for the begin of spring the US stock market showed some spring fever and recovered from its recent losses. The recovery is well-founded because the US economy is getting better and the fears about an allegedly collapsing China are overblown. In February American companies added 230,000 workers to payrolls, the unemployment rate stayed at 4.9%. The latest numbers for personal income & spending, retail sales, industrial production & durable goods orders all showed solid growth as well.
I believe that the bull market for stocks will continue for years. Inflation & interest rates are still very low (even that the Fed will continue hiking her interest rates this year). 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 order to gain manpower for their expansion. Therefore the growth of personal incomes in the US will accelerate and so fueling consumer demand.
The global economy is still getting a lot of tailwinds from cheap commodities. Last year`s price collapse for oil, industrial metals and some agricultures works 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 cheap gasoline should speed up consumer spending in the US which will foster the global economy (US imports = rising European & Asian exports).
Companies also are benefitting from the technological progress - evolution of Internet and other software (including AIs), robotics, 3D-printing and more - and are getting more efficient which will translate into rising earnings. The technological progress is fostering globalization as well. Emerging countries like China and India have easier access to new technologies which is promoting their transformation into modern economies. These processes are working together, creating global economic growth in the decades to come.