Stock Market: A Cheers To The Decade Of The Bull

 (Drivebycuriosity) - Tonight we will celebrate the end of an amazing decade - the decade of the bull. The bull market, which started in spring 2009, continued till today. The S&P, the gauge for the US stock market, tripled. The 2010s started on an irrational low base which explains that the annually total return (stock market gains plus dividend reinvested) was a bit above the long term trend (chart below). The sentiment was spoiled by the dismal 2000s and the recession panic from late 2008 lingered still in many minds, but eventually the positive fundamentals triumphed.

The table below shows that the annual returns where moderate compared to the 1978-1999 period. There is no bubble.

 ( source )


The positive performance has many explanations: The 2010s did not have a recession, even though many pundits were calling for it. The trade war against China did not escalate and it´s damages are constrained so far. The US economy is still sound, jobless rates & weekly jobless claims are close to all-time lows and consumer spending, the engine of the economy, have been growing solidly. China avoided the hard landing many pundits were calling for and is still growing 6% annually and  the  decades got tailwinds from relatively cheap oil & extremely low interest rates.

But the most important reason you can see in the table below. Company earning grew annually 10.5%, about as much as the stock prices. The gains on the stock market followed just the growth of the company earnings.

 (source )


I expect that the stock market gains will extend in the 2020s. 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.

Companies are also benefiting from 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. The tailwinds from the emerging markets will continue. 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, Microsoft, Google and other members of the S&P 500. I assume that the global economy will re-accelerate in the coming years, generating more company earnings and stock market gains.


To be continued