Bull market won’t die soon, despite turning 10

Ken Fisher, Special to USA TODAY
Published 7:01 a.m. ET March 10, 2019


Adam Shell explains a bull market on the occasion of the current bull market breaking the record for longest ever.

Will old age kill this super long, stock bull market? Saturday was its 10th birthday, and an unhappy one. Why? Most envision it dying soon.

A recent survey by the National Association of Business Economists showed half expecting a recession by 2020 and three-fourths projecting one by 2021. Actually, economists never have been good at forecasting the economy — or stocks. In fact, they’re legendarily bad at both.

My December 16 and January 6 columns proposed a strong, V-shaped bounce for the stock market following last autumn’s steep drop. By March, U.S. stocks were up 11.5 percent for 2019 and they were up 18.9 percent from Christmas Eve’s low, including dividends. So where do we go from here?

Short answer: Up. 

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Bull markets don’t die of old age. They die when investors’ over-the-top expectations spur them to grossly overpay for stocks, or when some multi-trillion-dollar ugly surprise wallops the world, causing recession.

Pessimistic economists are keeping a lid on people’s euphoria, giving stocks more room to rise. As for some wallop, it’s hard to image a shock worth trillions of dollars, because today’s risks look toothless, too small, or overly exposed and therefore factored into stock prices. Gains in the future may be slower and more jagged, but you should still expect big, full-year gains.

Especially in Europe, which now leads America. Why? It dropped more last year. Usually, categories that drop the most bounce back the most. Sentiment there is even more dour. Any growth will exceed expectations for Europe.

With the European Central Bank ending its asset purchase program, loan growth will increase. Britain and America already proved ending “quantitative easing” boosts growth, not the reverse. Britain’s Brexit will occur this month, or they’ll kick the can for two years. They get either falling uncertainty now or no immediate pressure. Either is great for European stocks.

Politics helps. Like in America, voters are leaving European governments in gridlock. Increasingly, governments can’t pass anything major.

Many misread the phenomena, fearing populists’ ascent. There really is no ascent. For decades, Western European nations had centrist coalitions. The major center-left or center-right political parties alternately led with support from one or two tiny, ideologically aligned ones.

The rise of conflicting extremist parties means no party exerts any real control. Instead come feckless coalitions between parties that haggle and can’t compromise — creating gridlock. 

Consider Italy. Most fear its so-called “populist” government. It’s really just a coalition of two opposing extremist groups who agree on little and legislate even less. Spain ironically linked socialists with its wealthiest party—the Catalan separatists. Austria, Belgium, Germany, Holland, Sweden, all have variations of this new gridlock.

Stocks love gridlock because it curbs legislative risk, reducing uncertainty. In America,  that happen most in every president’s third year. It’s why no third year of any president’s term since 1939, as World War II started, had a negative return for the Standard & Poor’s 500. But Europe’s gridlock is brand new, a stronger effect and surprise — another reason European stocks are strong now.

To participate in Europe in this long bull market’s next leg, gain easy exposure via iShares’ ETFs.

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For an all-in-one purchase, iShares MSCI Europe is perfect (Trading symbol: IEUR).

To fine tune it, preferring more of some countries, less of others, use MSCI’s country iShares: Germany (EWG), Britain (EWU), Switzerland (EWL), Spain (EWP), France (EWQ), Sweden (EWD), Netherlands (EWN), Italy (EWI), Austria (EWO), Ireland (EIRL), Denmark (EDEN), Belgium (EWK), Norway (ENOR) or Finland (EFNL).

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