Tuesday , 27 February 2024

Latest Action Suggests Stock Market Beginning a New Long-term Bull Market – Here’s Why (+2K Views)

There are several fundamental reasons to believe that this week’s stock marketinvesting activity, where the S&P 500 has moved more than 4% above the 13-year trading range defined by the 2000 and 2007 highs, could mark the beginning of a long-term bull market and the end of the range-bound trading that has lasted for 13 years.

So writes Anatole Kaletsky in an article* entitled Has a new long-term bull market begun in U.S.? posted on Reuters.

(NOTE: This post is presented by  Lorimer Wilson, editor of www.munKNEE.com and the free Intelligence Report newsletter (see sample here). The article may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read.

Kaletsky goes on to say in further edited excerpts:

…Two months ago, when Wall Street first approached a record high, I warned about the dangers of “stock market vertigo” – a condition that combines the fear of buying shares at unsustainably high prices with the equal dread of not buying shares at prices that will never again be on offer if the market soars to permanently higher levels…

In the week since last Friday, [however,],,,the S&P 500 has moved more than 4% above the 13-year trading range defined by the 2000 and 2007 highs…[and] has been confirmed by the Dow Jones industrial average and by broader Wall Street indexes, such as the Wilshire 5000 and the S&P equal-weighted index…[In addition,] while share prices in most other countries are still far below their 2000 and 2007 levels, the Tokyo stock market has taken off like a rocket and Germany’s DAX has matched Wall Street’s ascent.

[The abovementioned]…bullish behavior does not mean that prices will keep rising – by definition, the next daily move in any actively traded market is as likely to be down as up – but the records that have been set do mean that the plausible upside to stock prices is no longer limited to just a few percent, as it was when Wall Street seemed to be trapped in a range that had held for 13 years.

Now that this range has been broken, historical patterns suggest further big gains in the years ahead, while a relapse into the old range seems unlikely.

I described this in detail two months ago, so here is just a brief reprise.

  • In the past 100 years there have been 8 occasions when stock prices on Wall Street, as gauged by the S&P 500 and its predecessor benchmarks, have broken long-standing records by 3% or more.
  • All these records have been followed by further big price gains – doubling or tripling in the subsequent years, except for one occasion, when the S&P rose only 15%.
  • None of these breakouts have been followed by a significant price decline for at least six months.

Of course, past experience is not necessarily a guide to future performance…[but] there are several fundamental reasons to believe that this week’s stock market activity could mark the beginning of a long-term bull market and the end of the range-bound trading that has lasted for 13 years.

  1. The passage of time itself. When shares become overvalued, as they did in the boom of the late 1990s, they generally experience a price correction and a time correction. Stocks such as Microsoft, Intel and Amazon, which seemed ridiculously expensive at the market peak in March 2000, have become quite cheap as 13 years of growth in revenue and profit have finally caught up with exuberant expectations.
  2. Cyclical and political conditions in the U.S. and Japan are clearly improving.
  3. Growth in China and most of Asia is stabilizing at high levels.
  4. Stagnation in southern Europe may matter no more to the world economy than Japan’s stagnation in the 1990s.
  5. The shifting balance of structural forces…
    • Everyone is now fully aware of the long-term challenges that investors ignored at their peril before the 2008 crisis
      • aging demographics,
      • unsustainable debts,
      • escalating health costs
      • and so on
    • During the crisis years, however, it was easy to forget about the long-term opportunities that had excited investors and business leaders in the pre-crisis decades:
      • the billions of new consumers and producers added to the global market;
      • the reorganization of the entire world economy around capitalism and free trade;
      • the new products, services and efficiencies offered by electronic technology, bioscience and now unconventional energy.

Nobody can say for sure whether the balance of long-term trends is genuinely shifting toward these growth-promoting forces…[but] what is certain is that financial markets usually detect changes in economic conditions long before most economists, politicians and investors. By the time the reasons become obvious for a bull run on Wall Street, it is usually too late to join in.

(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)


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