Employment is high. Gas prices are soaring past $4. And the stock market has doubled within the past three years. Does this bull market really have legs?
It's hard to argue with someone who just won't see the facts for what they are.
Over the weekend, I was talking to an acquaintance about the stock market. He said he didn't believe we were in a bull market.
"The stock market has doubled in three years!" I said incredulously. "What more proof do you need?"
Apparently a lot more. The person pointed to high unemployment, gas prices soaring above $4, and every other negative in the economy and geopolitical scene that you can point to as a reason not to own stocks.
And that's just fine with me. The more doubters we have, the more likely the market is going to run up. I'm going to start getting worried when people are extremely bullish and talk at cocktail parties revolves around the stock market.
Here's why I believe the market still has legs:
- Headlines – I'm still seeing headlines about market corrections, the market going up too much too fast, etc. On Sunday, the Financial Times had a story titled "Wall Street Braced for Hit to Soaring Markets" chronicling analysts' bearishness. Let them be scared. When was the last time those analysts made anyone money, anyway? When those headlines become bullish, I'll get worried.
- Wall Street "Experts" – The market has already topped the expectations of most Wall Street strategists. At the beginning of the year, the average forecast was for the S&P to hit 1,363 by the end of the year. The highest target price was 1,515. Goldman Sachs' U.S. Equity Strategist said last week that he's sticking with his end of the year forecast of 1,250 for the S&P 500.
- The "fear" trade is over – We're seeing bonds and gold head lower. These are investment vehicles people buy when they want safety. They're rotating out of these assets and are putting them to work in stocks. The market is sending a very clear message that the panic of the past few years is finished.
I've said this many times before – the market is a forward-looking mechanism. Over the past few years, as stocks were heading higher, even when the economic picture was still bleak, I told you that stocks were telling us things were going to improve.