Tags: stock | market | oil | dollar

The Curse of Good News

By    |   Thursday, 05 March 2015 08:37 AM

This has been the most unloved bull market I've ever seen.

The S&P 500 has more than tripled from the financial crisis lows six years ago. Stocks have gone up every single year since the recession, and the index has returned an average of more than 16 percent per year for the last five years. In fact, stocks delivered a positive return in nine of the last 10 years.

Yet every single year the strong market performance seems to take a skeptical public by complete surprise. For some reason there is a huge disparity between the public's perception of the market environment and the actual performance of stocks.

A possible explanation occurred to me today as I was reading through the headlines. According to these headlines, things aren't good out there. It seems that we have too much oil, the dollar is too strong and stock prices are too high. At the same time, oil prices might fall again against the backdrop of inflation that's already too low.

Imagine someone arriving in a time machine from the 1970s listening to this. It would seem like a joke that people are fretting that there's just too much oil, no inflation and stock prices keep on going higher. To someone from the '70s, it's akin to a person complaining about being too rich and handsome.

I understand that there are positives and negatives to everything. Sure, an excess build up of oil inventories could lead to another leg down in oil prices and these lower prices could cause more pain in the energy sector and more layoffs. But that's just part of the story. The much bigger positive part gets ignored.

There seems to be scant mention of the fact that this country is undergoing a massive energy boom that will do fantastic things for this country for years to come. The U.S. is already the world's largest natural gas producer and it is expected to become the world's largest oil producer in the next year or two.

This energy revolution will provide jobs, tax revenues, a better balance of trade, cheaper manufacturing costs and ultimately energy independence. It is a huge shot of adrenaline to the economy and one of the best things that's happened to the country in a long time. But of course, a person watching the news or reading the headlines just sees another headache.

The strong dollar does hurt our exports. But it is also indicative of the relative superiority of the U.S. economy. A strong dollar will also lower the input cost of commodities for manufacturers.

Stock prices are not cheap, but they are not that high. The market is selling at a price-earnings ratio slightly above the historical norm but nothing outrageous. The market has been allegedly too high for years now. But it keeps forging on.

There is some understandable skepticism about this bull market. This market rivals those of the 1980s and 1990s, but this recovery has been a far cry from those boom times. There is a common opinion that the Federal Reserve's artificial stimulus and money printing along with near zero interest rates have pumped up stock prices for all the wrong reasons. Many believe it is a sour scheme that will end badly.

It is true that the Fed's tactics have buoyed the market. But that's not the whole story. Corporate profits have never been stronger. The American economy is resilient and exceptional. Since the end of the Cold War, the world is playing our capitalist game. And we are really good at it. There are more markets to sell to than ever before and America is still the most innovative and adaptable economy the world has ever known.

I understand that there are problems out there. But that's all most people hear about. Most are surprised by the market's performance because they only get the "bottle half empty" side of the story. But the market continues to tell a different story.

About the Author: Tom Hutchinson
Tom Hutchinson is a member of the Newsmax Financial Brain Trust. Click Here to read more of his articles. He is also the editor of The High Income Factor. Discover more by Clicking Here Now.

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This has been the most unloved bull market I've ever seen.
stock, market, oil, dollar
Thursday, 05 March 2015 08:37 AM
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