If it continues – and it certainly looks like it will – the current bull market will celebrate its ninth birthday in less than three months.
From the 2009 low, blue chips – with dividends reinvested – have more than quadrupled. Small caps have quintupled.
Yet I still talk to investors who have missed out entirely.
And pessimism remains high. Believe it or not, more money has flowed out of equity mutual funds this year than into them.
Why have so many foregone this historic bull market?
Many obsess over mainstream media reports that emphasize the underwhelming strength of the economic recovery, the low labor participation rate, the size of the federal debt, the political dysfunction in Washington, the Federal Reserve’s plans to raise interest rates and other downbeat news.
Since the skies appear perpetually gray to them, they don’t venture into the market. But perhaps they would if they focused instead on the many positive factors undergirding this rally.
- Unemployment is at a 17-year low (with 228,000 net new jobs created in November alone). Even though the workforce expanded by 1.1 million workers in the past year, the number of people employed is up 1.87 million.
- Household income is higher. The mainstream media likes to create the impression that incomes are stagnant. Wrong.
- “Total earnings” are up a solid 4.8% from a year ago. This is due to a 2.5% increase in wages combined with an increase in hours worked.
- Inflation is MIA. Policymakers have long argued that the consumer price index would rise as unemployment fell below 4.5%. But just the opposite has happened. The core personal consumption expenditures deflator – the central bank’s favorite gauge – registered just 1.4% in October, down from 1.8% in February. It hasn’t hit the Fed’s 2% target in five years.
- Energy is cheap. The revolution in hydraulic fracturing and horizontal drilling has created abundant, low-cost domestic energy, boosting both the economy and our national security. (Meanwhile it has undermined political foes like Russia, Venezuela and Iran that are dependent on high commodity prices.)
- Manufacturing is rebounding. The dollar is firm. Consumer confidence is up. And corporate earnings are at record levels.
- Plus, world economic growth is kicking into gear. While the U.S. has enjoyed two consecutive quarters of 3%-plus economic growth, Goldman Sachs forecasts 4% global growth in 2018. That will further boost corporate earnings.
- The Fed just raised interest rates, and the market is pricing in at least two more hikes in 2018. This is supposed to be a negative. Yet investors are well aware of this – and shrug. They rightly see it as further evidence that the economy is strong enough to go without central bank support.
- Trump’s $1.5 trillion Tax Cuts and Jobs Act will further boost economic activity. It will make our corporate tax rate more competitive, give consumers more money to spend, encourage foreigners to set up or expand operations here, and incentivize U.S. companies to repatriate much of the $2.5 trillion in cash held abroad.
If you aren’t persuaded by low inflation, rock-bottom interest rates, cheap energy, rising incomes, greater consumer confidence, full employment, tax cuts, synchronized global growth and record corporate profits, there probably isn’t much that will lure you into the market.
But the rest of us can celebrate this year’s stock market performance – and justifiably feel that we are entering 2018 with the wind at our backs.