The bull market has a lot more room to run. With the Trump Administration and GOP Congress deconstructing investment-killing business regulations and aiming to cut taxes, the economy is poised to grow faster, and new technologies will support higher valuations over the next several years
Supporting prospects for bigger profits, the energy and manufacturing sectors are becoming more efficient. With oil prices recovering to the low $50 range, oil and gas drilling has increased significantly since May. And manufacturing is posting more gains—to supply that industry and others—despite a stronger dollar.
Consumer spending remains robust and private investment appears to be picking up. A mismatch in the availability of housing—more starter homes are needed than are available for interested buyers—will power up new home construction. Overall, the economy is expected to grow at 2.4 percent this year as compared to 1.9 in 2016, and corporate profits for the S&P 500, which encompasses about 80 percent of the U.S. equity market, are expected to rise significantly this year.
All this is powered forward by conditions in China—both economic and new efforts for Beijing to exert more social control—which are driving money out of the country despite government controls. Along with Europe still only accomplishing moderate growth and Brexit casting a pale over European unity, America remains the best place for investors to place their bets.
Bonds remain an unattractive alternative to stocks—long yields remain low. Even with the Federal Reserve pushing up the fed funds rate 0.5 to 0.75 percentage points this year, the rush of foreign capital into U.S. markets will likely keep rates long rates low—as it did when Ben Bernanke pushed up short rates in 2004 – 2006.
At the same time, sustainable price-earnings ratios for stocks are rising and U.S. equities are cheaper than they look.
