It’s another up day in the U.S. stock market, with the Dow Jones Industrial Average comfortably above 10,000.
This despite the latest monthly unemployment report told us the rate is above 10%, meaning it’s actually higher if you count those seeking work or working fewer hours that they would like.
Skeptics say the market is way ahead of itself, but a reasonable case can be made for continued bullishness. It goes something like this:
-The world is awash in government provided liquidity and low interest rates. The Federal Reserve last week made clear it will keep rates extraordinarily low for an “extended period.” A Wall Street Journal article today by E.S. Browning expands on these points.
-Since the stock markets in the U.S. are increasingly institutional markets, with participants basing investments to a degree on leverage, those low rates are meaningful.
-Those low rates also will fuel more mergers, generally a stock market plus.
-U.S. corporates generally have their acts together. Earnings are solid. Yes, they are generally based on cost cutting rather than revenue growth, but that means when new revenues eventually show up, a significant portion will flow to the bottom line.
-The rest of this economically interconnected world is alive and kicking, especially in economically important areas of Europe and Asia. So the U.S. consumer, hampered by unemployment and lower house values, won’t have quite as much of the global growth burden as in previous recoveries.
-Market dynamics support the bull. Stocks are supposed to look forward and given our current situation, even at sub-par growth rates, it is not far-fetched to thing employment will start slowly increasing in the U.S. in the second half of 2010. Another market dynamic: the plethora of skeptics is a positive for further price gains. The majority view is typically a contrary indicator.
If you want a more bearish view, check the short article in The Wall Street Journal by Mark Gongloff, where the current scenario is compared unfavorably to the recovery year of 1983.
(See Neal on the News Hub video discussing the stock market by clicking here.)
November 9, 2009
Growing GDP, monster-sized productivity gains that will drive future earnings, business expansion and hiring that later in 2010, in turn, will generate future incomes and spending, record low interest rate that are very friendly to P/Es, foreign economies (Asia) on the rebound, over $3 trillion on the sidelines and not being paid to be there with Joe 6 Pack certain that we will remain in recession forever and who supplies the needed Wall of Worry for this bull market to climb.
Yes, there are serious issues regarding deficits, spending and other Obama headwinds, but they will get overwhelmed for the next 12-18 months. We are in an “in spite of” rebound and recovery. The trend is your friend!