Thursday, March 9, 2017

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

(Drivebycuriosity) - Today the bull market for US stocks celebrates his 8th anniversary. Since March 9, 2009 the S&P 500, the gauge for the US market, has more than tripled (plus 249% cnn ). Stock prices have been accompanying the healing global economy, especially the recovery of the US, and climbing company profits.

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.

I claim that we are in a secular bull market that could even dwarf the stock market rally from 1982 till 2000 when the Dow Jones jumped from just 800 points to around 10,000 points. My claim is mainly based on three arguments:

1. Company profits will continue their solid growth. During the recessions of the years 2001/02 and in 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 will translate into a long term trend of rising company profits.

2. We are experiencing a new industrial revolution.  Advances in Internet, mobile computing, 3-d-printing, robotics, nano- & biotechnology and other technologies are reducing costs, raising efficiency and creating new markets.

3. If the new US president comes up to his promises and will reduce regulation & taxes and invests into the US infrastructure company profits will even climb faster.

4. We also are having solid tailwinds from the emerging markets which are even getting stronger. The catching-up process in China, India, Indonesia and a lot of other countries translates into high growth in large parts of the global economy that creates continuously rising revenues & profits for global companies like Starbucks, IBM, Caterpillar, Apple and other members of the S&P 500 (world).

I don´t fear that the Fed will spoil the expected stock market gains, even if Yellen & Co. will hike their interest rates three times as they had already projected. History shows that stock prices & interest rates can happily rise together: The Bank of America Merrill Lynch (finance) notices that “the 1950s was a period of higher stock prices and higher US interest rates. The US 10-year yield bottomed near 1.5% in late 1945 and the S&P 500 remained firmly within its secular bull market until yields moved to 5-6% in the mid 1960s. The S&P 500 rallied 460% over this period.”


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