What more is there left to say?
The US stock market is near a record high.
The Dow Jones Industrial Average has gained 9.9% over the past 12 months.
Company earnings are better than expected.
That’s despite the recent sell off in tech stocks.
How long can the rally last? Surely it can’t go on forever…
Or can it? More on this later.
At some point the US stock rally will stop. It will plateau for a while. And then unless there’s some news to help push it higher, the market will fall.
That’s what happens to all bull markets. This one will be no exception.
Last night US stocks fell about 1%. Is that the end of the rally?
Who knows? Stock markets go up and down all the time. It’s what they do. But one night of falls doesn’t make a crash.
And until there’s a real prospect of a crash it’s up to every investor to make the most of what has so far been a spectacular bull market.
Because despite the worry of a bubble and a crash, stocks have done pretty well. Not just in the US, but around the world.
More for this stock rally to run
If you look at the chart of the Dow Jones from 2009 through to today it’s easy to see why so many people say it’s an unsustainable bubble.
The trend is undeniably upwards. And in fact, the gains appear to have accelerated since late 2012…seemingly without pause.
However, if you look at the longer term price chart of the Dow, going back to the early 1970s you’ll see that the current run isn’t all that unusual.
To prove a point, if you look at the chart below you’ll see that following the 1987 stock market crash shares rallied steadily for seven years before accelerating and rallying for another six years. That’s around 13 years of a rising market.
Although we can’t guarantee that history will repeat, it’s worth pointing out that the current rally is ‘only’ five years old.
Who’s to say US stocks can’t continue to run? Analyst Jason Stevenson gives his take on the chart set-up of the US market below.
But it’s not just US stocks that have been hitting it out of the park. You may not realise it, but going back to the creation of the S&P/ASX 200 index in early 2000 the best performing index has been the Australian share index when compared to the US, Japan and UK indices.
The Aussie index is the red line. It’s up 75.9% since April 2000. The next best performing index is the Dow Jones, with a 48% return.
Anger subsides as public enemy disappears
The one thing we’ve noticed in recent months is that the markets seem to be focusing less and less on the actions of central bankers.
Perhaps that’s due to the fact that ‘public enemy number one’, Dr Ben S Bernanke, is no longer at the helm of the US Federal Reserve.
In his place is the softer looking and unbearded Dr Janet Yellen.
The money printing was Dr Bernanke’s fault. It’s now up to the poor Dr Yellen to get the US economy out of that mess. Or that’s how the story seems to be shaping up at the moment.
That’s not to say the whole mind-numbingly boring subject of money printing is about to go away anytime soon. It’s simply that, unlike most of the past five years, it’s not the major theme of investment markets right now.
In today’s markets the theme has changed. Investors are more interested in growth stories. They want to know if the US economy can grow. Can China’s economy grow without going bust? And can Europe ever solve the problem of trying to fit one currency and one interest rate policy into the economies of the 18 countries that currently use the euro?
That won’t be easy. Australia has been proof of that over the past few years where the resource states have boomed while the industrial states have not.
Now picture those problems and magnify it by a population 10-times greater, where different languages and cultures need to co-operate, and where there is an ingrained and inherited distrust of almost every nation against the other.
Don’t miss the opportunities
But again, those aren’t necessarily new problems.
They’ve existed for some time. And economies in Europe have boomed and busted with and without those problems.
The issue is whether this time is different. Are the problems so great today that no one in the history of the world has ever had to face problems like this? In short, that these problems are insurmountable?
The world economy has grown tremendously since the Industrial Revolution in the 18th century. Each decade has resulted in improvements in technology and a rising standard of living.
It’s fair to say that nothing can grow forever, but does that necessarily have to be true for technology and living standards? Perhaps not.
In that case, if things continue to improve and entrepreneurs innovate and create better things, why shouldn’t that result in better investment opportunities and a growing economy, regardless of what happens at the macro-economic level?
We’re not saying that you should ignore things that go on with central banks and governments. It’s important to know what they’re doing.
But as we see it, it’s also important to keep things in perspective. There are a tonne of great investment opportunities on the world’s markets right now. And many of them are truly game-changing.
Focusing on the wrong things right now could be a big mistake if, as we expect, investment markets begin to focus more and more on the growth opportunities rather than on the global macro-economic problems.
Cheers,
Kris+
PS: Since 2009 we’ve seen Aussie stocks go higher and higher. Investors who didn’t have the guts to buy low back then have missed out on a huge market rally. Check out the Money Morning Premium Notes to discover the next place Kris thinks gutsy investors should put their money for big gains…
