Stock Market: Why The Bull Market Is Still Alive And Kicking

(Drivebycuriosity) - The bull market for stocks, which started in spring 2009, is alive and kicking. The new all time high for the S&P 500, the gauge for the US stock market, confirms that. On March 9, 2009, the S&P 500 closed at 676.53. Since then, the market value has more than quadrupled. Once we include dividends, it’s up fivefold (crossingwallstreet). We are enjoying the longest and strongest bull market in history, fueled by a growing global economy, technological progress - especially the advance of e-commerce - and climbing company profits.

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The chart below shows that bull markets (stocks gain at least 20% from a former low) are normal and bear markets (stocks drop at least 20%) are just a temporary aberrations. Obviously the perpetual climbing stock prices (with short interruptions) reflect two longtime trends: A growing global economy & rising  company profits.

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In the recent 2 years the stock market got some headwinds from the escalating trade war between the US and China which has been harming manufacturing in both countries. Therefore in 2018 US stocks dropped and the bull market got a severe test (driveby). But recently we got signs that the trade war could be restricted which reawoke the rally. There are also some tailwinds from low interest rates and relatively cheap oil.

I claim that we are in a secular bull market that could even dwarf the stock market bonanza from 1982 till 2000 when the Dow Jones rose from just 800 points to around 10,000 points. My claim is mainly based on four 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. Reduced taxes and less regulation in the US will also support the growth of the company earnings.

4. We are having solid tailwinds from the emerging markets which are even getting stronger. The catching-up process in China (which is still growing about 6%), 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, Microsoft, Google and other members of the S&P 500.

To be continued