The believers are hanging on for dear life. The bull market is in its 9th year as of March, when it hit 666 in intraday trade on March 6, 2009…and hasn’t looked back since. If this keeps up for another 12 months, it will be the longest running bull market in history.
BlackRock Investment Institute, the “think tank” of one of the biggest fund firms in the country, thinks the equity market still has room to run. Believe it or not, the Dow is going higher. If their global chief investment strategist, Richard Turnill, is right then fiscal stimulus has not been fully realized yet in the U.S. economy. That’s good for the world. In case you had forgotten, we are still the world’s largest consumer market. More growth here means more consumption of goods made there, as in Brazil, China, and elsewhere.
“This is the first time in decades that the hefty U.S. stimulus is coming outside of a recession,” BlackRock Institute economists led by Turnill wrote in a 12 page report published Tuesday. “Tax cuts and public spending (will) add about one percentage point to growth this year,” they say.
With a stronger economic outlook comes more investment. Not only from big corporations like Amazon, which is said to be spending millions in opening up a new headquarters somewhere on the East Coast, but also mid-sized private businesses. Greater capital expenditures and pent-up productivity gains from technology investment could lift growth even more over the long term, not just this year and next. Advancement in technology could contain inflation and help contain overheating.
“People forget that technological disruption like AI and robotics, plus updates to existing technology all help keep inflation in check,” says Jordi Visser, chief investment officer at Weiss Multi-Strategy Advisers.
A capex upswing may also help drive emerging market export growth to the U.S., reinforcing the global growth cycle. Emerging markets are set to improve this year thanks to mid-sized economies that have been recessionary (think Russia). China is slowing, but its smaller Asian neighbors are growing faster than they have in a long while. The MarketVectors Vietnam (VNM) fund is up over 37% over the last 12 months compared to 19% for BlackRock’s MSCI Emerging Markets (EEM) fund.
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“Synchronized global growth is a solid foundation for equities,” BlackRock’s investment team believes.
One reason for that call on equities is dividend payouts and share buybacks are supportive, particularly in the U.S., as companies look to deploy the tax windfalls they’ll be getting after April 15.
BlackRock sees inflation holding at 2%, meaning the Fed hikes three times are a surety, but four is still a possibility. More than four is unlikely as it will take some time for temporary inflation spikes and economic overheating to move the needle on the Fed’s inflation gauge.
Contrary to most, the BlackRock Institute thinks we are still in a low volatility environment. Recent dips of 500+, only to be corrected a few days later, are more normal than not. And steady, above-trend global growth is more supportive of low volatility than high.
Regardless, the bears are getting restless.
JP Morgan has been building up its depository silver stocks. Either the bank itself or its clients are buying silver bullion or the silver ETF (SLV). Usually, investors stock up on precious metals when they think the dollar will weaken. A weak dollar tends to mean stronger commodities. Silver and gold are also hedges against inflation and economic recession.
Russia’s prudent central bank has also been building its gold reserves steadily over the years. This year, it hit a record high.
Rising U.S. protectionism is the clearest menace to the near-term global outlook, however.
“Increasing U.S. actions against China and other countries spark bouts of volatility, but are not derailing the benign economic and market backdrop,” Turnill says, adding that any escalation into a trade war could deal a severe blow to sentiment and send the market closer to the bear’s den.