VIDEO: The Rip-Roaring Bull Market, Explained
Welcome to my video presentation for today. Read the article below, if you’d prefer a condensed written transcript.
We’re witnessing the Rodney Dangerfield of bull markets. It can’t get no respect. The pessimists continue to warn that the economy is deteriorating and stocks are poised for a crash.
In our highly partisan era, people nowadays embrace all sorts of falsehoods. In a nationwide Gallup poll taken in October, 68% of respondents said they thought economic conditions in the U.S. were getting worse. That perception is divorced from reality.
Truth is, economic conditions are markedly improving, although for many Americans it may not feel that way. Higher prices at the gasoline pump, in particular, can make people feel cranky.
However, soaring oil prices (and the concomitant rise in gasoline prices) are largely the result of supply-and-demand imbalances caused by the pandemic. The same dynamic applies to consumer price inflation. These distortions, though, should soon abate. As underscored by positive underlying conditions, the bull market has long-term legs.
The first trading week of November ended on a strong note, with the three main U.S. stock market indices closing at record highs. Equities posted their best weekly return in more than four months (see chart).
The Federal Reserve’s judicious plans for tapering, a healing jobs market, robust corporate earnings, falling pandemic infections and deaths, and the emergence of a promising new COVID pill are all reasons to maintain a bullish stance.
In what should prove another tailwind for the financial markets, the House last Friday night passed President Biden’s $1.2 trillion infrastructure bill.
Biden will soon sign the bill into law, guaranteeing the sort of fiscal stimulus that pleases Wall Street and the business community (see chart).
The “Build Back Better” bill addresses America’s long-deferred infrastructure repair needs, which is a huge win for the shares of construction and building companies.
Meanwhile, the Fed last week didn’t announce anything that isn’t already priced into the stock market. Fed Chair Jerome Powell said the central bank will start in November to wind down, aka “taper,” its monthly pace of bond purchases by $15 billion per month. That means the Fed will have finished shedding its purchases by June 2022.
Tapering is not synonymous with tightening. The Fed will continue to inject stimulus over the next eight months, but at a diminishing pace.
Robust consumer spending is upping the demand for goods, but production and transportation bottlenecks are driving inflation higher. However, I agree with Powell in believing that inflation will eventually moderate as supply chain woes ease.
The economic news has been good. The Labor Department announced last Friday that the U.S. economy added 531,000 jobs in October, as the unemployment rate fell to 4.6% from 4.8% the previous month. The number of jobs added in October increased by 219,000 from the previous month (see chart).
Job growth was widespread, with notable gains in leisure and hospitality, in professional and business services, in manufacturing, and in transportation and warehousing.
For comparison, in January 2021 the unemployment rate was 6.3%, and jobless claims were coming in at the astonishing pace of 900,000 a week.
Last month, as the wave of Delta variant infections ebbed, service sector job gains picked up steam. The trend should continue into 2022.
Consider last week’s release of the Purchasing Managers’ Index (PMI) for services, which jumped to a record high in October (see chart).
In the week ahead, keep your eyes on the following economic reports scheduled for release: initial jobless claims and consumer price index (Wednesday); and five-year inflation expectations (Friday).
As I’ve just explained, there are plenty of reasons to stay bullish. But you also need to stay selective, and that’s where our Investing Daily analysts can help.
Our investment team has unearthed a tech play that’s poised to take off, but it’s flying underneath Wall Street’s radar. To learn the details about this rare money-making opportunity, click here.
John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link.