CAPE TOWN – The main US stock market indices are in the longest bull run ever. This milestone was reached on August 22.
The Dow Jones average index had increased from 6726 points on March 11, 2009, by 19 428 points, or 289 percent, to 26 154 points last Friday.
This is a bull run of 114 months. It also seems the end is not near: John Lynch at LPL Financial, in a note to customers, argued the US bull run still has a long way to go.
He remarked: “From tariffs to trade wars to inflation to a flattening yield curve to a global economic slowdown, the headlines continue to cast doubt on the sustainability of this economic cycle and bull market. Although we see several potential stumbling blocks, we continue to believe this economy and stock market rally have plenty of fuel left in the tank”.
Given the multiplier effects of the tax cuts, increased spending by the government, less-than-expected interest rate hikes, lower inflation and growing earnings due to increased tariffs on imports will carry stocks for at least another year.
Over the past year ending September 14, the IT-driven Nasdaq index had increased by 24.2 percent, the S&P index had gained 17.8 percent, while the Dow Jones Industrial index had improved by 15 percent.
Of interest is that the normal “sale in May and go away” tradition was broken as investors continued to buy US stock.
Technology stocks and consumer discretionary remain the top performing sectors on Wall Street.
Since the beginning of the year consumer discretionary stock shot up by 28.4 percent.
The IT sector had gained 27.5 percent. Given the slack increase in US interest rates, financials already had increased by 13 percent, following the health care sector (which increased) by 12.5 percent.
The strong increases in fuel and gasoline prices favours the energy sector and share prices had gained 12.1 percent. Industrial shares also are growing strongly by 12 percent.
Will the bull run continue?
These factors are of importance;
First, earnings growth. The average earnings growth on the S&P board during the second quarter were more than 27percent. If this growth continues during the next six months the bull run will continue.
Second, how long will global investors see the US as a safe haven against the contagious effects of the US-China tariff war and emerging market crises of Turkey and Argentina?
Third, how long will the Fed stay “behind” the interest rate cycle, if it is indeed behind it, as the US inflation rate is starting to dwindle.
The surprise momentum in the US economic growth rate. The country recorded an unexpected 4.1percent increase in its gross domestic product growth during the second quarter of this year, the highest since 2014.
If this momentum continues then the bull run is more than likely to continue.