Stock Market 2020: Will The Bull Market Continue?

(Drivebycuriosity) - The begin of a new year is the time to look back and ahead as well. 2019 was very encouraging. The S&P 500, the gauge for the US stock market, gained 29% last year and the bull market, which started in spring 2009, continued. A large part of last year`s gains were a correction of the panic from Christmas 2018, which brought temporarily a drop of almost 20%.  Arithmetic says if you lose 20% you have to win 25% to reach the former level (basis effect). Since begin 2018 the S&P rose about 18%, making around 9% annually (chart below).

( finance.yahoo )


The recession, which many had predicted and which was almost priced into the stock prices, did not happen and is not around the corner. 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, is growing solidly. China avoided again the hard landing many pundits were calling for and is still growing 6% annually and the tailwinds from relatively cheap oil & extremely low interest rates continued.

I expect that the stock market gains will extend in 2020 and beyond. 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 climbing company profits. Companies are also benefiting from a new industrial revolution: Advances in Internet, cloud- & mobile computing, 3-d-printing, robotics, nano- & biotechnology and other technologies are reducing costs, raising efficiency and creating new markets.

There are also continuing tailwinds from the emerging markets. 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.

Happy New Year!