Five Reasons The Bull Market Is Likely to Go Even Higher

There's been a lot of chatter recently.  The "fat, ugly, bubble."  Is the "bull running out of steam?"  Goldman strategists "are becoming more cautious about stock markets."

At Runnymede, we are neither perma-bulls nor perma-bears.  Rather our perspectives on the financial markets are based upon research, and our market outlook is reflected in the positioning of our clients' portfolios.  In fact, we have been bullish on the market since July 2016.  So where do we stand right now with the bull market having recently celebrated its eighth birthday?  After much thought and careful reflection, here are five reasons why the bull market is likely to go higher.

Happy Birthday! Bull market in stocks turns 8.

The bull market in stocks celebrates its eighth birthday today.  As it turns out, it's also my birthday. This got me thinking about what was happening in the world when I turned 8.  In 1980, the Pac-Man arcade game was released.  Camcorders and fax machines were cutting edge technology.  A whole lot of people were watching TV to find out Who Shot JR? on the popular soap Dallas.  The yearly inflation rate in the U.S. was 13.6%.  The average cost of a new house was $68,700.  The average cost of a new car was $13,650.  I'll also mention that a (government subsidized) hot school lunch cost $0.65 and milk was $0.05.  Okay, enough about me.

Tom Lee: Republican "Revolution" Could Extend Bull Market

tom lee.jpgRunnymede has been bullish on the stock market since early July because of improving earnings and good value relative to fixed income. As we ahead to 2017, we remain positive. Former JP Morgan Chief Equity Strategist Tom Lee shares our enthusiasm for equities in a recent interview on CNBC.

S&P on track to post best earnings since 2014

As we move past Election Day, financial markets should be able to refocus on what truly matters: company fundamentals. This should serve as a catalyst to push equity prices higher with earnings finally back on the rise. It has been a tough period for earnings because of the strength in the US Dollar and extreme volatility in crude oil prices. This trend appears to have finally stabilized. The energy sector is expected to post a flat quarter after posting huge losses for the previous four quarters.

QE side effect: Corporations are getting paid to borrow

side_effects.jpgWe have all seen pharmaceutical commercials on TV where a listing of common side effects may include diarrhea, nausea and drowsiness. In today's financial markets, central banks are expanding their balance sheets by trillions of dollars annually and new side effects are on the way. This week saw a new milestone in the world of negative interest rates, when Henkel and Sanofi became the first public companies to sell new Euro bonds for more than the buyers will get back.

The Deflationary Impact of Negative Interest Rates

negative_rates.jpgThe Japanese and European central banks have taken extraordinary measures to resuscitate their economies. Instead, they may be sending them further into a deflationary spiral. If you take a quick look at the major stock markets around the world, you will observe a clear pattern that is likely to surprise you. Zero/negative rates are highly correlated to poor stock market returns this year; while higher central bank rates correlate with high market returns. It is the economies that are in the worst shape that are having to test negative rates.

Black swan watch: European banks

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In 2007, Nassim Taleb published his best-selling book "The Black Swan: The Impact of the Highly Improbable." Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan events and are exposed to losses beyond those that are predicted by their defective financial models. This proved to be right on the mark as one year later, the financial system almost collapsed due to poor financial models that predicted real estate prices would go up forever.

Systematically Tracking Financial Weather Conditions

weathercock-2-1391640-1280x960.jpgIn the travel industry, prevention of accidents is at the top of its agenda. Safety drills for airplane takeoffs and landings are routinely practiced. On ships, passengers are assembled for lifeboat drills as soon as they board the vessel. Every passenger’s name is called out and checked off; both the passengers and crew take the drill very seriously in view of the fact that just a few years ago the Italian ship Costa Concordia ran aground on the coast of Tuscany and toppled on its side. Ship captains and sailors are in constant touch with weather stations, downloading data into their computers for the most up-to-date weather forecast and analysis.

Will Derivatives Be The Next Black Swan?

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"It's déjà vu all over again." - Yogi Berra

The stock market has long been classified by economists as a leading indicator of the economy. It tracks and reflects the nation’s economy and industry fundamentals. The market often seems able to anticipate positive or negative change before it happens. Since the beginning of the bear market in August of 2015, the prices of many bank stocks, especially European and Japanese banks, have declined steadily and precipitously. Deutsche Bank has lead the way by dropping below the level it reached in 2009. Shares of HSBC, Citibank, Bank of America, Credit Suisse, Goldman Sachs as well many other big banks have also taken a beating of 25-45%.

The Market Is Broken: Thoughts on Big Investors and Lack of Oversight

In the financial markets, we have always had two important components: investors and regulators. Today, we are seeing governments as significant market participants that impact global markets. Sovereign wealth funds and public pension funds around the world are now among the largest owners of publicly traded stocks and bonds. China and Japan alone represent $5 trillion in public funds out of an estimated total $30 trillion of investments owned by 160 countries. No doubt these are investors of great size that can crowd out individual and institutional investors.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Runnymede Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.