Stock Market: Welcome To The Stocktoberfest

(Drivebycuriosity) - Munich is celebrating her gigantic Oktoberfest again. Wall Street has her own festival. Yesterday the S&P 500, the gauge for the US stock market, climbed to a new all-time-high, Dow Jones & Nasdaq reached new records as well. The US stock market gained 9% year-to-date and 17% in the recent 12 months. Since the panic trough from spring 2009 stocks climbed more than 300%. Enough reasons to celebrate!

I believe that the party will continue. History shows that stock prices follow the company earnings. This year company profits climbed about 25%, more than the US stock market, which made stocks even cheaper (lower PE correlations). Even if we discount the positive influence of the corporate tax cuts by the Trump admiration (about 8 percentage points) company earning grew about 15%.

I reckon that the trend of rising company earnings (annually 10% plus) will continue in the coming years - generating more stock market records. Rising company earnings are a long term trend. Corporations are getting more efficient & more productive over time - thanks to learning processes and the technological progress. They are learning organisms because they are managed by humans who are continuously improving themselves and their companies. During the recession 2008 companies had restructured and reduced costs significantly in order to survive. Now they are more fit & more efficient than before.

Company earnings are also boosted by automation.  Since the early 18th century (the first industrial revolution) the technological process has been enabling companies to produce more goods & services with the same amount of employees. More and better machines are doing the work of people which translates into lower costs, higher profit margins and climbing earnings.

It seems that this process is accelerating again and we are at the begin of a new industrial revolution. We are experiencing a rapid advance of information technology, meaning combinations of computers, smartphones, Internet and other digital systems. Software - which is increasingly Internet connected and uses more and more the cloud (access to huge external data centers) - organizes the whole business: Creating new products, inducing machines to run more efficient, finding cheap suppliers, manage customer relations and so on. Car producers and many other manufacturers are increasingly using robots and similar machines to reduce their costs. Companies are also beginning to use 3D-printers to become more cost efficient and flexible. All these developments translate into global economic growth and in even faster climbing company earnings & stock markets.

Enjoy!