I’ve been trying to define the current stock market. There has been some volatility – the big dip in 2020, a couple of corrections in 2022 and then there was the a month or so of downside in the 2nd quarter of this year. But overall, we’ve enjoyed a steady climb upwards. The S&P 500 was at 2,970 in January 2020, it’s now north of 5,700. That’s 92% growth in fewer than 5 years. What’s going on?
The magnificent 7 companies of the tech world have been a huge part of the explosive growth over the past 5 years, but financials, consumer goods, energy and manufacturing have seen some great growth as well. Because of that, I call this market the ‘everything’ market. And it doesn’t seem to be fading.
The Leuthold Group is a research firm used by many asset managers. Jim Paulson is a senior advisor for the group. This is how he looks at the state of the American ecoonmy: “Short rates are falling, bond yields have declined, money growth is rising, fiscal stimulus has again expanded, and disinflation is still evident; and because of this new and overwhelming support, expectations for a soft landing should grow while both consumer and business confidence improves.”
It’s tough to define what’s really driving this ‘everything rally’. It seems like many different sectors of the economy have good reason to continue to rally – but demand for products and services seems to continue. Consumers have money, and they are spending.
On the supply side, the number of publicly traded companies continues to decline. The number of publicly listed companies has dropped to fewer than 4,500 at the end of 2023 from more than 8,000 in 1996. That means institutional investors continue to chase stocks in spite of high valuations. The are willing to take on more risk to stay invested.
When will this end? Paulson thinks it’ll continue at least into next year.
Questions?
