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
