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Portfolio strategy update Do We Have a Bull Market in the U.S.? David Gottstein Petroleum News Contributing Columnist Editor’s note: David Gottstein is with Dynamic Research Group in Anchorage. This column was written in early June. Everyone has to admit that the stock market gains in the United States so far this year have been impressive. Nine percent on the S&P, and almost 20 percent for the Nasdaq, would already be solid gains to retire a year on.
Are the gains sustainable and, perhaps, even a perch to launch further gains?
Interest rates are low, high federal deficits are usually stimulative, we have new tax cuts coming, GDP growth was revised upward in the first quarter from 1.6-1.9 percent growth, and earnings have come in at comfortable double-digit levels when compared to last year. The government is hitting on almost all the cylinders it can muster. It would seem that at the least the economy is poised to reflate itself at some level.
The president is betting heavily on an improving economy as a way to maintain his popularity going into the next election. More discretionary income In further good news, those who are working are enjoying more discretionary income as mortgage refinancing payment savings has outstripped any general inflation. The bad news is that unemployment continues to be too high, and is not really getting any better, to suggest any real turnaround in the economy.Signs of hiring important Much of the growth in the economy has come from productivity gains. That can come through innovation or more overtime pay for existing workers. However we are still experiencing high initial claims for unemployment. And the states are in very tough shape, and face significant cutbacks.
We are not yet seeing any signs of additional hiring in order to meet growing or expected demand. Until that happens, and capital spending improves, we are likely to see at best modest economic growth as opposed to something more robust. Prices reflect anticipation of growth The recent gains in the stock market have put the price earnings multiple in the 19 or so range. Pretty darn high by long-term historical standards. Prices fully reflect an expectation of good growth as a result of government and other factors.
In the long run, prices reflect fundamentals, but in the short run, they are chased by money.
Available liquidity and momentum may push the market indexes higher, but not likely on a sustainable basis.
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