One constant for the last 7 to 8 years has been the ever-increasing value in the U.S. stock market. There have been hiccups along the way, but since the Dow hit bottom in March 2009, the market has been screaming to new heights every year.
The Trump election seems to have made it soar upward faster than ever before. Just consider the data:
**Record high’s weekly, in some cases daily!**
11/22/16 – Dow 19,000
1/25/17 – Dow 20,000
3/1/17 – Dow 21,000
8/2/17 – Dow 22,000
10/18/17 – Dow 23,000
11/30/17 – Dow 24,000
By every measurable standard, this is the greatest bull market of all time! It is the Tom Brady, Michael Jordan and Babe Ruth of money! It is “The GOAT!”
We know this just by comparison. Consider these past bull markets:
1946-52 – 267% gain on the S&P
1982-87 – 229% gain on the S&P
1993-2000 – 302% gain on the S&P
2009-2017 – 330% gain on the S&P
Here are the reasons why the market continues its record-setting run, and some reasons why it may finally be ready to correct.
Top 3 Reasons the Market Remains in BULL Territory:
- The ‘Trump-Bump’. The Trump-Bump has many factors, some of which includes massive deregulation and the expectation of fundamental tax reform. The tax reform bill has reached the conference committee between the House and the Senate, and seems poised for passage. It’s best features include lower, flatter rates; cutting business tax rates; increasing child tax credits; and, eliminating loopholes. It should be an economic boon for the country.
- The Rise of the ‘Non-Fundamentals’. The “Old Fundamentals” of Wall Street that analysts used to look for market trends included P/E ratios, the consumer price index, the rate of inflation, jobs reports, unemployment, and housing starts, among others. All of these and more were, and some still are, important in trying to figure out the direction of the market. But we developed the list of “NON-FUNDAMENTALS.” They are more important now today than perhaps the old Wall Street numbers game and they consist of the big three: (1) Sentiment, (2) Safety, and (3) Strength. Public SENTIMENT – the public BELIEVES in the economic-friendly changes Trump has promised. SAFETY – our system is “safer” than our global competitors. Why? We have the deepest capital markets, innovation, and the rule of law. And, STRENGTH – despite the last 8 years and the drag on capitalism, the U.S. remains the strongest nation on Earth. The dollar remains the world’s reserve currency (for now). And keeping your money in U.S. markets is a smarter bet than China, Europe and elsewhere.
- The ‘old’ fundamentals aren’t doing so bad, either. Last quarter 70+% of corporations posted reported earnings EXCEEDING analysts’ expectations. Profits are up. Revenue is up. GDP is above 3% for 2 straight quarters and heading towards the best year in over a decade. Inflation is elevated from 1.9% to 2.2% this past month, but not a runaway problem like the early 1980s. Housing starts and sales are far and away back to pre-2008 levels in terms of pricing and market health and standard measurements of job growth and the unemployment rate are steady.
What are the reasons we could see a correction? Most analysts have been shocked we have not seen a correction at some point over the last 8 years. History and reason dictate one should be coming soon.
What Risks to a Market Correction Could Bring the “Bear” Out from the Woods?
- What goes up MUST come down … right? History dictates we must have a correction. This market has been supported by 8 years of money printing … 8 years of Fed Reserve easy money interest rates … 8 years of quantitative easing … This was artificial stimulation. Therefore, we have been due for a correction for some time. Even a 5% correction will be a 1200-point drop on the Dow.
- The fundamentals don’t support a “forever” bull market. Some market fundamentals look good. Others? Not so much. Consider: Labor participation rate lowest in decades at 62.7%. Individual investor accounts cash holdings at an all-time low. This means investors are “all-in” with no more cash to put into the market. Fewer companies in Dow, no diversity in stock purchases. In 1997, there were 7300+ companies traded on the Dow, today there are 3600 and dropping. Longtime analyst Mark Hurlburt has stated this means “…Harder for your money-guy to construct a broad-based, diversified portfolio that can perform better than broad-market index fund.”
- Geopolitical risks – the ‘known’ ‘unknowns.’ A) China – you cannot trust their numbers or their markets in a communist state B) Russia – what will the Russians do next in Eastern Europe or the Middle East C) Europe – Europe’s most important player, Germany, has an election crisis and the continent is devoid of leadership D) Middle East – this one requires no explanation E) North Korea – this one also requires no explanation.
Those are just a few.
Analyzing the market for the last 8 years has been pretty simple – you just sat back and watched it go up, up, up. The problem with a long bull market is that you can’t predict when the correction is coming, and the longer the bull runs, the deeper the bear strikes. Losses will match or exceed gains when it turns south, and that can come at the worst possible time. The smart money puts at least some of those gains into safe investment vehicles, in order to prevent a 2008-styled portfolio apocalypse.
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