The strong run off the market of the 23 March lows surprised market veterans, as we saw the shortest Bear markets in history after a 35% fall in less than a month. With all of the indexes at or near all-time highs, and with the economy coming back to its pre-C-19 shine, the Big Q is: is Still room to run for this Bull?
The Big A: Yes! Here is Why.
1) We are in the 1st phase of a new investment cycle, following a deep recession. The 1st phase begins in a recession as investors start to anticipate a recovery, is typically the strongest part of the cycle. That is what we have seen this year.
2) The V-Shape economic recovery looks more durable as vaccines become more likely.
3) Economists have made upward revisions to their economic forecasts and it is likely that analysts expectations will follow.
4) The BMI (Bear Market Indicator) is pointing to low risks of a Bear market despite high valuations.
5) Policy support remains very supportive for risk assets. There is both The Trump Fed Put; the belief that world central banks will be there to provide as much liquidity as is required and a fiscal Put as governments have ramped up their willingness to support growth.
6) The stock risk premium has room to fall.
7) The resumption of Zero interest rate policy together with the extended forward guidance, has created an environment of greater negative real interest rates. This is highly supportive to risk assets in an economic recovery.
8) Stocks offer a reasonable hedge to higher inflation expectations.
9) Stocks look cheap relative to corporate debt, particularly for strong balance sheet companies.
10) The digital revolution is gathering pace. This transformation of the economy and stock markets has further to run. These companies could continue to drive valuations and returns in this Bull market.
Have a healthy day, Keep the Faith!
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