Brac­ing for the third long­est Bull Run in his­tory

Financial Mirror (Cyprus) - - FRONT PAGE -

The US stock mar­ket is seem­ingly obliv­i­ous to the tense geopol­i­tics that is cast­ing shad­ows of doubt over Euro­pean sta­bil­ity. As Amer­i­can stocks and in­dices are surg­ing full­steam ahead, in­vestors are living the dream and de­light­ing in what looks set, if it con­tin­ues to May, to be­come the third long­est Bull Run in his­tory.

When Obama was sworn in, dur­ing the heights of the Great Re­ces­sion, in­vestors were un­der­stand­ably ner­vous to trade cur­ren­cies and stocks; only the safe haven as­sets, like the pre­cious com­mod­ity gold, ex­pe­ri­enced any note­wor­thy gains. Yet from March 2009 the up­swing in stocks has steadily gained mo­men­tum. Fast-for­ward to the present, and the Dow and S&P 500 in­dices haven’t en­joyed such good re­turns since the days of Pres­i­dent Rea­gan. Just last week, stocks ral­lied again when the Fed­eral Re­serve sug­gested that fu­ture rate hikes will prob­a­bly hap­pen grad­u­ally. Even its chair­woman Janet Yellen jumped on the bandwagon and noted how stock prices are close to record lev­els.

Lead­ing the cur­rent trend are a num­ber of in­flu­en­tial tech and biotech com­pa­nies. The Nas­daq in­dex, home to both th­ese in­cred­i­bly per­form­ing sec­tors, rose above the 5,000 mark on Fri­day 20th March, com­ing close to its all-time high of 5,048.6 back in 2000. That’s a real re­flec­tion of the suc­cess of its com­po­nents. Twit­ter is the talk of the town, up 35% this year, Cisco is outshining Wall Street ex­pec­ta­tions, Ap­ple is as strong as ever fol­low­ing its re­cent prod­uct launches and earn­ings fig­ures, and the iShares Nas­daq Biotech­nol­ogy ex­change traded fund (IBB) has soared 20%.

The tril­lion dollar ques­tion now is whether or not it can last. Can the mar­ket con­tinue its bullish streak and break new records? Or do the cur­rent highs mean that a crash is in­evitable and im­mi­nent?

The good news is that many an­a­lysts share an op­ti­mistic out­look. Wells Fargo, for ex­am­ple, say that be­cause of the great lows of the Re­ces­sion, this bull mar­ket is likely to last longer than av­er­age. The multi­na­tional bank an­tic­i­pates that stocks will re­turn an av­er­age of 9% to 12% a year over the course of the next decade.

Three key trends cer­tainly seem to jus­tify this mar­ket con­fi­dence. First of all is the fact that to­day’s tech-savvy mil­len­nial gen­er­a­tion will con­sti­tute one quar­ter of the US pop­u­la­tion in 10 years’ time. In other words, de­mand for the lat­est tech goods and ser­vices is likely to stay high and grow. Se­condly, the stats re­veal that the tech world spends a greater per­cent­age of sales on Re­search and Devel­op­ment than any other in­dus­try sec­tor. This fo­cus on in­no­va­tion will en­able com­pa­nies to stay ahead of trends and to sat­isfy and fuel the an­tic­i­pated de­mand.

Last but not least, we must also con­sider the wider con­text in which th­ese busi­nesses are op­er­at­ing, namely the strength­en­ing US econ­omy which has re­cently boasted a se­ries of pos­i­tive data re­leases. Per­sonal con­sump­tion ex­pen­di­tures were up in the last quar­ter of 2014, helped by the long-an­tic­i­pated growth in wages and the high lev­els of em­ploy­ment. Public con­fi­dence and spend­ing power is set to ac­cel­er­ate in 2015 and will have a pos­i­tive rip­ple ef­fect through­out the na­tional econ­omy. The irony of course is that it’s largely thanks to the tech­ni­cal revo­lu­tion that the world is chang­ing more quickly than we’ve ever ex­pe­ri­enced. And yet for that very rea­son to­day’s tech trends and cor­po­ra­tions look like they’re here to stay for a while. Con­sider mak­ing th­ese stocks a part of your trad­ing port­fo­lio.

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