The Bull Market Run: Is it Time to Slam on the Breaks?
What is a bull market?
We heard this all the time and if you are in the stock market investing, I’m pretty sure you’ve heard of this.
Simply put, a bull market according to TheStreet.com is when the securities market keeps rising — or, when stock prices continue rising 20% from a previous drop of 20%. But, bull markets can refer to other markets as well (like housing or investment).
Are you or anyone you know an investor in the stock market, or has a 401(k), 403(b)?
Do you work for a company that is involved in the trading of shares?
Do you converse with others who are keeping an eye on the market’s performance or watches the financial news on a regular basis?
Then you are all fully aware of these bull market run.
It is one of the longest ever Dow Jones run in the U.S market history. This bull market run is not only affecting the U.S. economy but the global economy as well.
However, being the suspicious people, we are and the apprehension of the investor overall, the paramount question that people are asking or is on the back of everyone’s mind is, “how long will this bull market last?”
Will this bull market run continue this year?
This is a natural question and concern since we are in unchartered waters and the reality of pure physics is that what goes up must come down.
However, there are many positive reasons as to why I believed that the stock market is still on an upward trend. In fact, here are five solid reasons why I think the stock market may still have room to run in 2018.
1. The U.S. and global economies are growing
The first significant reason that indicates that the stock market may still have room to run in 2018 is due to the financial health of not just the American economy but the global communities as well.
It is important to remember that the world is shrinking. This shrinkage is not regarding geography or circumference but concerning all aspects of communication including the blurred lines into the global financial realm.
This melding of the global financial community is clearly demonstrated in that when something sensitive occurs that affects the market on one side of the world, the ripple effects of that situation is then realized across the global markets. One such example would be the recent financial crisis that was experienced in Greece.
Therefore, based on this mass interaction globally, individual investors and nations are actually invested in each other’s financial markets.
In other words, the American market is invested and intertwined in the global markets and vice versa.
Consequently, it could be argued that the global financial markets are not isolated or individual markets, but one massive intricate financial system that is married or melded together.
This is good news for the most part. Primarily due to the reality that if the American market is healthy and robust, then the global market, for the most part, takes on the same strength which then circles back to the American market with a continuation of that cycle.
David Joy, the chief market strategist for financial and broker advisor Ameriprise Financial ( AMP), said that in 2018, stocks would be once again much better than bonds. Joy says that although the U.S. is performing well, potential growth relative to economic growth seems to be stronger in the international markets than the U.S. thus stock may shine in 2018
Additionally, it is vital to elevate one’s thinking regarding American corporations. That is because the reality is that most American corporations are not just American corporations, but global corporations.
2. Robust corporate earnings
Another significant reason as to why I think this bull market run may continue in 2018 is because of corporate earnings.
On average, businesses are pushing the income graphs higher or experiencing robust corporate earnings. These healthy earnings are one of the primary factors behind the rally in the stock market.
I do believe that the corporate earnings and global business activity over the near to intermediate term should continue to go up, which should, in turn, support equity prices.
Global synchronized growth will likely continue, and in the coming year, U.S. economy is expected to remain strong.
It is anticipated that more money in the pocket of the consumer will create an opportunity for the consumer to purchase additional product from various businesses.
This, in turn, will jettison corporate earnings.
Also, it is expected that businesses will also utilize their monetary windfall by investing in capital projects. It has also been seen that the tax reform experienced by business is finding its way into the American household.
This increase in revenue has been realized through the giving of bonuses and increases in hourly wages. These turn of economic events will infuse more money into the economy and help to increase the financial health of other corporations and businesses.
Analysts are also expecting another strong year of growth and profit for corporate America.
These anticipated actions will then only further boost the possibility of another bull market run this year.
3. Consumers are confident
Adding to the possibility of the stock market continuing its upward run is the motivating factor of consumer confidence.
At least in the last ten years, consumers are more confident than they have ever been. They are convinced that the robust growth in 2017 will continue into 2018.
These economic expectations are what’s driving the consumer confidence at a record high.
The consumer confidence index (CCI) is a statistically based reflection of the goods consumed and reflects the present and future state of the economy and cost of living for the American household.
Simply put the consumer price index (CPI) measures price variations of products purchased by the consumer. These products purchased are good and services.
This measurement is taken monthly and compares the current CPI with past consumer price indexes.
Currently, this index has seen a slight increase in cost for the average consumer which can be interpreted as a positive reflection of the cost to the consumer as it relates to the economy or the cost of living.
The index also is taken into account by the market and helps drive the market in either direction.
In this case, with the consumer index being positive, it helps to stimulate and drive the markets upward.
Consumer optimism is high.
4. Low-interest rate
Another good indicator or measure of where the market may be headed is the interest rate set by the Federal Reserve Board.
This interest rate is the baseline for other lending institutions when it comes to the interest rate that they levy when lending money to other entities.
Low-interest rates are good for the borrowers because it cost less for them. When the interest rate is low, more people are willing to borrow money. More people are now able to afford to buy big purchases such as residential homes and pay less on their home mortgage interest.
This low-interest payment can have a ripple effect of increased spending which in turn can have a positive impact on the economy.
The interest rate, fixed by the Federal Reserve, is the interest rate that banks use when lending money overnight to other banks.
It is part of the banking system that requires banks to keep a certain amount of money on hand to meet their financial obligations.
The setting of the interest rate by the Federal Reserve is a tool that can be utilized to control inflation and stimulate the economy.
The current federal interest rate is low. Also, because of the somewhat low level of interest, it is anticipated that this will not slow down this bull market run in 2018 despite the expected modest increases of the interest rate that may occur throughout the year.
5. Record employment
The level of high employment or rather the level of unemployment is at a 49 year low. Currently, the unemployment rate is at 4.1 percent, and financial analysts are predicting that it may even go lower next month.
Can you imagine the possibility of a 3.5 percent unemployment this year?
Theoretically, this is a positive indicator of the state of the economy. Because more people are employed, it logically bears out that the demand for labor is high in the workplace.
If the demand is high in the workplace, then it stands to reason that companies are producing.
If companies are productive, then they are selling and buying a product. This, in turn, drives the economy upward as a whole and increases the bottom line for the individual company.
Additionally, if the American worker is earning a somewhat decent wage, then they too are contributing to the U.S. economy. This contribution is realized when they as the employee become a consumer of goods and purchase product which in turn stimulates growth.
This entire process all feeds back into the economy which in turn continues to drive the stock market upwards.
This bull market run is, of course, an economic reflection of the corporate earnings and investment dollars in those companies.
The first quarter has been a wild ride for the stock market so far, and it will most likely be the same for the rest of the year.
Do you remain bullish in 2018 or you are slamming on the breaks?