Wednesday, March 9, 2016

Stock Market: Happy Seventh Anniversary Bull Market - More Will Come

(Drivebycuriosity) - Today the bull market for US stocks celebrates his 7th anniversary. Since March 9, 2009 the S&P 500 gained 193% (reuters). From the beginning stocks have been climbing a wall of massive skepticism. It seems that the skepticism turned into hate. Those who have missed the gains since 2009 or made high losses by shorting the stock market are getting very angry. Marketwatch, Businessinsider and other media platforms are quoting frequently pundits who are calling for new massive corrections, crashes, recessions and worse. Stocks are now below 6% below the peak reached last May, a tribute to the gloomy sentiment, but apparently not enough for the bears who are growling louder and louder (businessinsider).

The recent stock market losses and the general skepticism are ill-founded (driveby): The US economy is getting better. In February American companies added 230,000 workers to payrolls in February, 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 think this bull market will see more anniversaries. Since 1928 (the long run) the US stock market (S&P 500) created an average return of about 10% p.a! (dividends reinvested investopedia). So, stock market gains are the rule and dropping stock prices (including corrections & crashes) are the exception. Since spring 2009 companies have been reducing costs & debts and have been getting more efficient & productive.

The global economy is getting a lot of tailwinds from cheaper commodities and low interest rates. The sharply reduced prices 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 & heating should speed up consumer spending in the US significantly which will boost the global economy. 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.


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