Tuesday , 26 September 2023

Why the hell are stocks still going up?

Despite the Federal Reserve now on a rate rising path, here we are with the major stock indexes just short of all-time highs. Why the hell are stocks still going up?

The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.

1) There is nothing else to buy. Complain all you want, but US equities are now one of the world’s highest yielding securities, with a lofty 2.5% dividend. A staggering 50% of S&P 500 stocks now yield more than US Treasury bonds (TLT). That compares to two thirds of all developed world debt offering negative rates and US Treasuries at 2.85%.

2) Oil prices have bottomed, but remain historically low, and the windfall cost savings are only just being felt around the world.

3) While a low Euro (FXE) if definitely eating into large multinational earnings, we are probably approaching the end of the move. The cure for a weak euro is a weak euro. The worst may be behind for US exporters.

4) What follows a collapse in European economic growth? A European recovery, powered by a weak currency. European quantitative easing is working.

5) What follows a Japanese economic collapse? A recovery there, too, as hyper accelerating QE feeds into the main economy…The Japanese yen (FXY) will probably FALL for the rest of the year, adding more fuel to the fire there.

6) While the next move in interest rates will certainly be up, it is not going to move the needle on corporate P&L’s for a very long time...

7) Technology everywhere is accelerating at an immeasurable pace, causing profits to do likewise. You see this in the FANG stocks, where blockbuster earnings reports are becoming as reliable as free upgrades. Biotech has been on a tear as well…

8) US companies are still massive buyers of their own stock, and a relaxed repatriation tax law is pouring gasoline on the fire. This has created a free put option for investors for the most aggressive companies, such as Apple (AAPL), Cisco Systems (CSCO), Microsoft (MSFT), IBM (IBM), and Intel (INTC), the top five re-purchasers…

9) Ignore this at your peril, but there is a global synchronized economic recovery going on which has been in the works for some years. A decade of central bank monetary stimulus and government fiscal stimulus is bearing some fruit.

10) Ditto for the banks, which were dragged down by falling interest rates for most of the last decade. Reverse that trade this year, and you have another major impetus to drive stock indexes higher

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One comment

  1. All these points paint a beautiful picture…one that surprises me with its rosiness. But, I still have to wonder if the economic wizards have been able to design and engineer a fail-safe future for equities–and for those who benefit most from them. Not mentioned in all this optimism are a few nagging issues, namely the mushrooming debt–both national and personal, tapped-out consumers, lazy GDP, and a new tariff-driven trade war.