It's crazy to think about now, but the stock market is setting up for a massive surge this year and it is imperative that investors take a closer look at their investments and consider jumping in the market (and jumping out of the market) at the appropriate times. Will we wind up in another manic episode like in 2008? I doubt it, but there are a few analysts who are quick to be the ones to say the sky is falling. On the other hand, there are economic strategists likeDeutsche Bank's Binky Chadha, who believes that the S&P 500 will reach 2,600 by the end of the year, or in other words, will post an annual gain of 12.0%. His is the most bullish forecast of the 18 forecasts complied by Bloomberg for the year, but it is nonetheless worthy of note. Here are a few other noteworthy items involving the stock market this year.
1. V-Shaped Stock Charts
According to Chadha, both the S&P 500 and US GDP growth have been showing the same V-shaped chart since the first quarter of 2016. For those who are not chart enthusiasts, we are in a type of economic recession and recovery that resembles a "V" shape in charting. Specifically, a V-shaped recovery represents the shape of the chart of certain economic measures, such as employment, GDP and industrial output. A V-shaped recovery involves a sharp decline in these metrics followed by a sharp rise back to its previous peak. This has a lot to do with the increased value of the US dollar relative to other global currencies in the past few years, but most notably due to Brexit. If you'd like a sense of ;how the S&P has been performing over the last 10 years, check out this chart
2. Q4 Earnings Were Actually Better Than Expected
Chadha also reasoned that corporate earnings in the 4th quarter of 2016 (we are learning the results now) are far better than anyone actually thought they would be. Most analysts, not just at Deutsche Bank, believed that earnings would generally be flat or slightly down compared to last year. Lots of analysts ended up cutting estimates before earnings season, which is typical when they expect companies to post bad results and indicate a weak economy. As it turns out, these cuts were VERY wrong. Most stocks beat expectations by 3.0% to 3.5% on average - and indication of actually strong earnings growth. Cool! The same economist also expects the US GDP to grow by 3.25% by the end of this year.
3. The "Trump" Effect
Not going to dip into this very much, but will note that the post-election optimism among business owners is still strong, namely due to potential stimulus spending by the government. Whether this happens or not, I cannot say, but the point is that the optimism still is there for those who are expecting it, and this will keep the stock market afloat for some time. As I have expressed several times before, this pattern is not that unusual for the election of a Republican president. The market is usually flat before the presidential election, rises sharply, and then experiences another flat period.
4. Contrarian Voices Are Still Strong
Of course, this guy is one of a handful of uber-optimists; there are plenty of contrarians. And that is neither good nor bad - it's comforting knowing that some people share a healthy skepticism towards the recent market surge. One analyst noted that Trump can potentially have an impact on the US economy greater than Reagan. However, some note that the Trump administration will be “aggressive and thoughtful” or “aggressive and reckless” when it comes to foreign policy. And this, my friends, has a lot to do with how the economy will fare going forward - how easily we can conduct business overseas.
Greetings, GradMoney Readers!
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