A frequent refrain among commentators is that this ongoing growth in the stock market has to ‘come to an end’ at some point because of, well, mostly because it’s been going for a while and that it’s gone entirely too far in the last few years.
Given the market’s penchant for 50 percent corrections since the turn of the century, the latter point can’t be discounted entirely, but the former – that essentially, the bull market is endangered because it’s long in the tooth – feels a bit reductive. The day’s figures on car sales due out from the major automakers are likely to support the worries people have about a slowdown that’s just a short drive away from the economy going into a ditch, or something like that (it’s not as if the economy is awesome right now), but the belief in a mid-cycle slowing in some key consumer metrics is probably more the ticket.
Right now the business cycle points to the U.S. being in a mid-cycle area – business inventories are 6 percent higher than a year ago but that doesn’t appear out of whack, notes Dan Greenhaus of BTIG. Job growth has been better than it has been since 2000 (1.375 million private sector jobs in the last six months), and that may underscore how sluggish the growth has just been for 15 years and perhaps less about what’s happening now – the new normal many discuss isn’t emerging now, just confirming the activity of the last decade-and-a-half, where the heaviest fuel for job growth was in the ill-considered housing bubble era of 2005 and 2006.
Furthermore – and the recent August experience probably overstates this – low volatility and still ho-hum capital spending suggest the expansion has further to go as well, as the kinds of imbalances present (too much spending on pie-in-the-sky projects that will take too long to finish) aren’t there just now (examples would be the Empire State Building, World Trade Center, Shanghai World Financial Center, Burj Khalifa in Dubai – basically, when the world’s next tallest building is under construction, it’s time to sell).
With this in mind Morgan Stanley even predicts the S&P could get all the way to 3000 if the economy continues to grow at this steady pace with 6 percent earnings growth for the next five years. Those types of predictions are the kinds of things that usually get people in trouble amid long-running expansions, but Morgan Stanley also points out that the jobless claims figures dropping to the 300,000 range and consumer confidence moving up into the 90s readings really reflects (finally) recovery from the deleveraging that dominated the last several years. (We pause once again to consider just how awful this recession was.)