U.S. STOCK MARKET: Can the bull market keep fighting?

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03/21/2014 | 05:26 pm
Traders on Wall Street have being pulling out incredible benefits since the Global Financial Crisis (GFC) in 2009. An increase of about 15% has been recorded on current year bonuses, while others reached more than a 50% pay hike. But, is this trend going to continue for awhile or is it close to the end?
It is clear that the market has roared back since lowest levels experienced during the financial crisis. An important number of shares of companies listed in Europeans and Americans stock exchanges are well above their historical lows on March 2009.

As American stocks rose, the S&P 500 ended at record on last March 7th for with better-than-expected statistical data and the effort of both the ECB and the FED to keep rates unchanged. Better levels have been observed at the beginning of todayís session, reaching 1884 points.

If the S&P500 arrives to new all time highs by the end of this month, this bull market will formerly become the longest since the beginning of the twentieth century, with high possibilities to be stronger than during the period of the housing bubble inflation.

On March 7th, the reference index attained new historical quotes at 1878.04 points, which means a gain of 177% over the record low at 676.53 points in March 5th, 2009. The Dow Jones, which followed closely the evolution of the S&P500, registered a global progression of almost 251%. Even better is the performance that displayed the Nasdaq100, being the most affected by the Sub-Prime Crisis and thus the forerunner of the GFC, making 255% since March 9th, 2009 as it surged to 3703 from only 1036 by this period.

Among the three main American market indexes, the tech one has by far the best spread (40%) versus the S&P500. These outperformance come as the Nasdaq 100 is one of the least volatile, due to the absence of financial equities on its composition and the amazing progression showed by the high-tech industry. Apple and Google, the two most important constituent shares improved prices by 108% and 373% respectively, not bad at all. Moreover, recent statistical reports argue for even higher improvements concerning markets, as 73.5% of S&P500's companies released better-than-expected earnings in the last quarter, even though 61.3% of them released greater quarterly sales.

Some odds could give us the idea that maybe the market is more likely to suffer a setback rather than to continue rallying in the near term. The instability generated by tensions in Ukraine, for example, and possible sanctions against Russia coming from the United States and the Europe Union, have being affecting the conventional progress of commodities prices and directly related companies. As a slowdown in the global economy has been revealed in recent statistical releases, there is no doubt that many investors and traders decided the way of profit-taking instead of continue blowing its bucks on the gambling.

In spite of all reasons exposed above, the settlement of the Fedís monetary policy, also known as Quantitative Easing (QE) and ultra-low interest rate, fuels the rally toward new historical records. It also bolsters housing prices and lower costs of mortgage credits, by the mean of assets purchases supplies money to financial intermediaries that in a second stage open credit lines to companies and individuals ultimately transmuted in consumption and investment. A considerably part of this stimulus boosts equity markets. The dominoes effect of central banks announcements on stock prices behavior revealed being a significant piece of the pie. In addition, increased share buybacks tied to an intensified activity in Mergers and Acquisitions help pushing prices and invigorate the market.

For bearish traders, for example, the current market configuration could seem suitable for profit taking, while bullish ones will prefer to reinvest their gains expecting new tops. The good news is that for now the market shrugs firmly to assure its position while important events destabilize global economy; and that, is a good signal of participants willingness to keep on the move.

Looking ahead on a six months horizon, as soon as the two most powerful economies of the world (USA and the EU) still aligned, markets have no reason to change its trend or even suffer a backlash. Indeed, the unconventional monetary policy adopted by the Federal Reserve that searches for job creation and control inflation would continue in the midterm even if lower assets purchase levels could be set up and the ECB keeps its guidance for inflation tracking and a more powerful euro; thus anticipations drive risen consumerís confidence on the economy, so only small corrections could be awaited in equity markets.  Prompting additional cash flows fuels emerging markets as foreign bonds purchases remains unchanged.

Rosanna Santana
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