April 5, 2016


6 Reasons the Bull Market Won't Go Away (Kira Brecht, April 5, 2016, US News)

Despite getting old, there are still signs this bull market will continue.

"At 84 months, this bull market run is the third-longest in history," says Hank Smith, chief investment officer at Philadelphia area-based Haverford Trust. "Despite headlines to the contrary, age does not kill bull markets. Recessions or the anticipation of a recession end bull markets. Fortunately, the economic data does not support that narrative."

While economists have bemoaned the sluggish growth rate of the current economic cycle, there could be a silver lining to the slow but steady outlook.

"One of the advantages of the so-called '2 percent recovery' is there has not been enough growth to create traditional excesses - inflation, inventories, overstaffing, overbuilding, overbuying, overlending - that would typically lead to the next recession. This could turn out to be one of the longest economic expansions," Smith says. [...]

Earnings growth. Earnings will be a big key to driving stocks higher, Canally says. "Steady GDP growth in 2016 should help set the tone for better corporate revenue growth, which historically has correlated well with the growth of the overall economy. Adding in improving growth overseas, a more stable dollar and stable energy prices, we think will help drive earnings gains in the mid-single digits by the end of 2016 and into 2017," Canally says.

Recession risk is low. While manufacturing remains in modest contraction mode, the backdrop for the U.S. consumer is generally favorable, says Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis. "Wages are firming, consumer savings are up, low energy prices are bolstering discretionary spending and housing remains solid. Importantly, bear markets typically occur in and around recessions when inflation is heating up. The Fed is fully entrenched in tightening mode, valuations are extended and investor sentiment is approaching euphoria. This does not seem to reflect our current environment."

Only Fed rate hikes into the teeth of deflation could kill the economy.

Posted by at April 5, 2016 8:15 PM