Happy birthday bull Market! Last Wednesday marked the 7th year since the market bottomed out in 2009.
Since the bottoming of the equity markets 7 years ago, we have seen US quantitative easing, an inflation scare, a debt ceiling debacle, operation twist, a government shutdown, taper tantrums, Eurozone breaking the 0% threshold, The first rate hike in 10 years, and a meltdown in oil prices…
I am sure I missed about 1,200 things that occurred, but with all the focus being paid to Federal Reserve actions as of late, these are centric. They show where we have been and hopefully where we will not be going again any time soon.
A day after the bull birthday, Mario Draghi, the European Central Bank President, took drastic measures to stimulate the European economy. You would expect that with these actions, the markets would have surged that day… no!
Mr. Draghi stated in his press conference that he did not envision any additional stimulus being required anytime soon… Rather than latching on to the actions taken, which were substantial, markets decided to focus on his forward guidance! This is like giving your child a cookie and telling them it was the last one… Rather than enjoying the cookie, they cry that it was the last one… Sorry, I do not mean to reduce market mentalities to the level of a toddler, but if the shoe fits…
It appeared that the markets grew up overnight as they decided to rally on Friday shaking off the forward guidance and recognizing the current stimulus for what it was… meaningful.
Forward guidance is where a central bank envisions it will be heading, while economic data will influence actual action. So for all of Mario Draghi’s statements about there being no more stimulus coming, economic activity will actually drive his actions.
For 7 years, this bull has raged on. In the last year or so, it has been showing its age. This bull could continue on as central banks continue to be accommodative. There are concerns that could derail the economy, as always. Weak profits due to the strengthening dollar, inflation induced by firming oil prices, and a consumer that hibernates due to fuel prices. While these concerns are real, oil prices are still far from reaching the levels described, with little indication that they will return to those levels in the near term.
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