Whipsaw here are 14 fundamentals for the bull (from the Dell thread):
14 Fundamental Reasons for a Higher Stock Market
(from www.bull-market.com)
Increased
Savings
The Baby Boomers are saving for their college education and their
own retirement. 78 million people will turn 50 in the next 15 years.
Comment: This will drive continued funds into equities.
Corporate
Earnings on the
Rise
Corporate earnings are good and will continue to improve.
Comment: Major corporations have streamlined themselves
over the past five years and are well positioned to profit
handsomely in the future. However, the 3rd quarter of 1998 will
be slower than expected.
Inflation on the
Decline
There is low inflation; it will stay this way and move lower.
Comment: The stock market thrives on low inflation.
PE's May Grow
PE's are only slightly higher than normal from a historic standpoint
and have room to go higher. PE's for the S&P 500 historically have
ranged from 17 to 23 and are currently at about the 20 level. There
may be a reason for the higher PE's now - see the other reasons
below.
Comment: PE's have room to move upwards and are not out of
line from a historical standpoint.
Strong Economy
The economy is strong and will stay this way. Business Week
Magazine has a cover story about the 21st Century Economy. They
state that the technological changes that will occur in the next ten
years will dwarf what we have seen in the last ten, creating many
opportunities for growth. They state: "We are just at the start of a
powerul surge in technology that will boost economic gains into the
next century." See
businessweek.com
Comment: This lays the groundwork for a healthy stock market.
Coming
Balanced Budget
The budget has been balanced, and the political fallout will be very
positive.
Comment: This legislation has passed Congress and the
ramifications of this will be felt over the next few years.
Declining
Interest Rate
Trend
Interest rates are trending lower. We believe they will head into the
middle 4's sometime in late 1998 or early 1999. Historically, bonds
trade about 300 basis points higher than the inflation rate, currently
running between 1 and 1 1/4% per year. Inflation may drop further.
Comment: The stock market thrives on lower interest rates.
Investment &
Equity Market
Growth
On average, $18 billion per month has been moving into the market
for the last 36 months. However, August was a slow month, with only
$11 billion and September was slower yet. We are watching this
trend. This money must find a home. In addition, there are few
alternatives for the investment dollar - there are fewer real estate
investment choices, there are few oil and gas partnerships, virtually
no tax shelters, and no precious metals investments like there were
in the 1980s. Thus, money will continue to move into the equity
markets, especially via 401k's.
Comment: This trend will continue and will be a driving force
for a rise in equity prices.
Possible
Investment of
Social Security
Funds
Social Security is in serious trouble; it will be privatized sometime
within the next 3-5 years. Part of that fix may be to invest some of
those monies in equities. Greenspan mentioned this before
Congress and there is various discussion now about allowing 2% of
SS monies to be put into equities. This will be THE major political
issue in 1999.
Comment: Additional funds flowing into equities should
produce higher equity prices.
Stock Supply is
Falling
Continued major corporate stock buyouts are reducing the supply of
stock, which increases the demand for the existing stock. Exxon, for
example, has bought back 32% of its stock since 1983 and
announced another buyback. Compaq announced a 100 million share
buyback. Disney announced a 400 million share buyback. GM may
buy up to 10% of its stock back each year for the next few years!
Comment: Corporations are using their free cash flow to invest
in their own stock rather than paying dividends, which are
double taxed. These buyouts create strong pressure for
upwards price moves. These are massive buybacks.
Budget Deficit
At the current level of economic growth it appears that the budget
deficit will be brought to zero by early 1999, much faster than
anticipated.
Comment: Politically, this is powerful news. Increased fiscal
responsibility from the US Government is a good trend and will
be a further impetus for higher valuations for equities.
IRA Investment
Limit To Be
Raised
Congress has passed the Roth IRA law that provides investors with
the ability to invest funds and allow them to grow tax-free.
Comment: This will force more money to be moved into
equities over the next decade.
Lower Capital
Gains Taxes
Congress lowered capital gains taxes again in July, 1998.
Comment: Historically, lower taxes have been good for
equities
The Internet
The growth of the lnternet is giving investors from around the world
quick and inexpensive access to markets and information. Trading
activity and commerce are likely to increase rapidly as the internet
further permeates our lives.
Comment: The internet will continue to produce wealth for
those individuals and corporations that are forward thinking. |
