Home
Our Services
Meet Our Team
Client Events
Special Events
Cambridge Investment Research

NelsonCorp In the Headlines
Team Recognition
Account Lookup
Newsletters
Stock Quotes
Financial Briefs
Financial Headlines
Articles Of Interest
Financial Calculators
Market Data Bank
Web Resources
Contact Us
Disclosure
Importance of
a CFP

Financial Headlines


More Articles  Printer Friendly Version

 

Why Does The S&P 500 Keep Breaking Records?

The International Monetary Fund, in its latest World Economic Outlook, revised its July estimate for world growth higher, to 3.7%. That's way up from 2016, when the world economy grew by 3.2%.

In July, the IMF estimated global GDP for 2017 would jump to 3.5%, and 3.6% in 2018. The latest revision bumped up the expected growth of the world economy to 3.6% in 2017 and 3.7% in 2018.

The latest consensus GDP forecast of 59 economists surveyed in early October by The Wall Street Journal projects an economic growth of 2.5% over the five quarters through September 30, 2018.

Expected growth of 2.5% is much higher than the average GDP growth rate of just 2.1% during the first seven years of the economic expansion, which started in March 2009. That's a strong outlook, and way above the growth trend set earlier in the expansion.

Consequently, the average annual earnings growth rate of 7.3% over the decades on the Standard & Poor's 500 stock index is currently expected to grow by 12% in 2017 and 11% in 2018. That would be a surge in earnings growth. Earnings drive stock prices, so this is important for long-term investors.

As this bull market grows older, the statistical likelihood of a bear market - a drop of at least 20% - does indeed increase. A correction of 10% or 15% is possible at any time, just because of a change in sentiment or a bad unexpected event. But the economy is showing no signs of coming undone. Fundamental economic conditions that have accompanied bear markets in the past are not present at this time.

Inflation is tame, job growth has been strong, real growth in wages and disposable personal income are at record levels and the usual indicators of recessions in the past are nowhere to be found.

U.S. stocks rose on Friday after the Senate passed a budget resolution, a step toward enacting a massive tax cut aimed at fostering growth. While a revision of the U.S. Code would require some attention to tax planning between now and the end of 2017, the opportunity for savings could be significant for many individuals, and it is expected to stimulate consumer spending, savings, and business activity.

Despite the tripling in the S&P 500 since the market bottom in March of 2009 and all of the good economic and tax news, investors are not bidding up stocks prices beyond their historical valuation range or showing signs of irrational exuberance. The average price of a stock in the S&P 500 trades at 19.9 times its trailing 12-month earnings and 17.4 times the consensus bottom-up forecast for 2018 earnings, according to Wall Street analysts' consensus estimates. The S&P 500, which has been hitting new record highs for months, closed Friday at a new all-time high of 2575.21, and the bull market could go on longer and head much higher.


Email this article to a friend


Index
Tax Bill Drives Another Stock Market Record And Gives You To-Dos By Year-End
An Eventful Week In Wealth Management
Seven Steps To Protect Yourself After Data Breach
8 Opportunities To Save Tax Before It's Too Late
Leading Economic Indicators Surge, Stocks Break Record High Again
Poo-Poohed By Politicians And Pundits, The U.S. Economy Is Booming
The No 1. Fake News Story Of The Year Affecting Your Wealth
News Affecting Your Wealth Dominated The Headlines This Past Week
U.S. GDP Growth Surprise Propels Stocks To New Record
Five Bright Ideas About Year-End Tax Planning
New Year's Resolution: Review Your Estate Plan
U.S. Stocks Nearly Doubled In The Last Five Years
The Big Economic News The Media Keeps Missing
Trump Tax Plan Upends Year-End Tax Planning
Key Senators Agree On A Road To Cutting Taxes This Year

This article was written by a professional financial journalist for NelsonCorp Wealth Management and is not intended as legal or investment advice.

©2017 Advisor Products Inc. All Rights Reserved.
Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC to residents of AK, AL, AR, AZ, CA, CO, FL, GA, HI, IA, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, MS, NC, ND, NE, NH, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, WA, WI.
Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.
Cambridge and NelsonCorp Wealth Management are not affiliated.