On August 22 the current bull market for stocks will officially be the longest in history – 3,543 days. While there are plenty of reasons to worry – high corporate debt levels, high price to sales ratios, high tariffs and trade war concerns, and mega-high returns for a select few tech companies – there is also ample reason for the rally to continue.
US economic fundamentals are strong and even showing signs of getting stronger. Profits are surging for some of America’s largest companies stuffing their accounts with cash. These cash hoards will be further augmented by the corporate tax reductions. This will inevitably lead to increased stock buybacks and more mergers and acquisitions, which directly favor stock price. In addition, cash will be deployed for increased productivity and/or hiring and wage growth.
The institution that monitors the economy closer than anyone, the Federal Reserve, has come to the conclusion that the economy is quite healthy and ready for a normal rate environment. The Fed remains on track to raise interest rates several more times in the coming quarters and years to prevent the economy from actually overheating and causing high inflation down the road.
On the sentiment side, we are seeing more signs of greed but not quite like we see during market tops or just preceding a recession. In short, there are plenty of naysayers and cash on the sidelines to reasonably conclude that we have not entered into an era of “irrational exuberance” just yet.