10 Reasons the Running of the Bulls Will Continue

Hey, I see you there holed up in your bunker with your survival bag and gold hoard…

You think we’re in for the mother of all market crashes. I haven’t convinced you this bull market still has a long way to run.

But today I’m gonna beat it into that thick skull of yours.

So put down that god-awful dehydrated meat and listen up…

This market is much healthier than you think.

And despite some market chop, trading is going a lot smoother than the financial media would have you think. Even if a correction happens sooner than later, that ain’t exactly a sign of the apocalypse, my friend.

Look, stocks are strong overall. But don’t take my word for it. Savita Subramanian, head equity and quant strategist at Bank of America Merrill Lynch also thinks this bull’s still got plenty of steam.

And she’s outlined 10 reasons this bull market will keep powering forward. Here’s what she said in a recent BofA report:

  1. Sentiment is pessimistic.

Joe Mainstreet is worried about stocks right now. And so are the pros.

As Subramanian notes, “Wall Street sentiment is at bearish extremes with strategists recommending just a 52 percent stock allocation.” But she adds, “When investment strategists have been this bearish in the past, the S&P 500 rose 98% of the time, with average gains of 27%.”

Got that Mr. Contrarian?

  1. Fund managers have a ton of cash.

“Cash levels remain high at 4.7 percent,” she says.

That money’s just gathering dust on the sidelines. And sidelined cash is bullish because a lot of it’ll end up in stocks. Where else can it go, Treasuries? Puh-leeze. And when that sidelined cash starts flowing into stocks it’ll push the market higher.

And related…

  1. No “Great Rotation” has happened yet:

Frightened investors run to bonds for safety. Confident investors look to stocks. And investors who fled to bonds after the 2008 crash haven’t traded in their bonds for stocks yet—not by a long shot.

“Since 2009, equities have seen less than $500 billion in inflows, compared to over $900 billion for bonds,” Subramanian says. “The Great Rotation out of bonds into stocks has more to go.”

People are still afraid of stocks. That’s bullish. I’ll start to worry when Joe Mainstreet bets all his chips on stocks again.

  1. Companies have less debt than at prior market peaks.

“The S&P 500 has cut its leverage ratio to just above a third of its 2000 and 2007 peaks,” she explains.

Leverage is just a third what it was before the last two bubbles burst? That doesn’t look like a bubble to me…

  1. Cash is king.

“Unlike the U.S. government and the U.S. consumer, corporate balance sheets are as healthy as ever,” she says.

S&P 500 companies are sitting on more than $1.4 trillion in cash. That’s an all-time high, my friend. As in…ever.

  1. Income growth is beastly.

Looking for yield?

“Nearly half of the S&P 500 pays a dividend yield above the 10-year Treasury yield, close to its 3-decade high, and the S&P 500 payout ratio sits near century lows,” Subramanian reports.

  1. Stocks aren’t crazy expensive.

Yes, on the surface, stocks aren’t cheap. The S&P 500 is trading for an average price-to-earnings ratio of 16. Again, that’s not dirt-cheap. But it’s only slightly higher than its historical average price-to-earnings ratio of 15.5.

And the BofA report notes that stocks are inexpensive based on such metrics as price to free cash flow.

Bottom line: stocks aren’t as overpriced as many would have you believe.

  1. U.S. companies innovate.

What’s so great about U.S. companies? They spend money on innovation. And the more money they spend on research, the likelier they are to outperform…

“The U.S. spends more on R&D than any other country including China,” the report says.

  1. S&P 500 is best-in-breed.

U.S. stocks are 10% more expensive than global stocks—it’s true.

But Subramanian says that premium is justified. The S&P 500 offers quality the rest of the world can’t match—“a higher-quality index… that offers greater transparency.”

Put that in your pipe and smoke it.

  1. Lower oil prices are a win.

The oil crash isn’t great news for drillers and producers. But it lowers expenses for plenty of other industries and sectors not directly involved with the energy industry. Oil’s loss is their gain in other words. Oil goes down but other sectors go up. That’s how it works.

There ya go – 10 reasons why this bull market isn’t running out of steam any time soon. So put away the survival bag and climb out of the bunker, dude. Don’t forget…

The S&P 500 rose 98% of the time, with average gains of 27% when investment analysts have been this bearish in the past.

If that doesn’t make you bullish, nothing will…


Greg Guenthner

for The Daily Reckoning

P.S. This market is much healthier than you think. If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, for FREE, right here. Stop missing out. Click here now to sign up for FREE.

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