as part of our
"A sluggish economy, political gridlock, tepid earnings, the
European debt crisis, high gasoline prices…"
I can't really argue with
depiction of the current market environment. Yet against all these
seemingly negative conditions, the stock market keeps surging
Can it possibly continue, though?
Well, yesterday, I produced some statistical backup, which tells
us that the answer is "yes." (In case you missed it, you can gain
Today, it's time to focus on the fundamentals.
Sorry, bears. They point to higher prices ahead, too.
All seven of them.
Take a look:
Bullish Fundamental #1: 'Tis the Season
As fate would have it, the Dow and S&P 500 Index are
approaching record highs at precisely the right time of the
Simply put, March and April happen to be strongly positive
months for the market. In fact, they represent "the best two-month
combo" over the last 20 and 50 years, based on Bespoke Investment
More specifically, over the last 20 years, the Dow has been up
70% of the time in March and April - for average gains of 1.2% and
So, bears, I have a question for you: "Do you feel lucky, punk?"
Because that's what it's going to take to overcome the momentum and
seasonality working in stocks' favor right now.
Bullish Fundamental #2: It's All About Earnings,
By now you probably cringe when I say it. But it doesn't change
the fact that stock prices ultimately follow earnings. And they're
still going up.
In the fourth quarter, S&P 500 companies reported earnings
growth of 4.2%, compared to analysts' estimates of 2.6%, according
And for the year ahead, analysts expect profits to grow a
Bullish Fundamental #3: Time to Get Sentimental on
Normally a bull market inspires optimism on the part of
individual investors. But the financial crisis and ensuing market
collapse left scars - horrific scars that are clearly preventing
individual investors from embracing stocks for any sustained period
of time. Even as prices approach near record highs.
I say that because it only took a few down days in the market
for investors to abandon their optimism.
Case in point: The weekly bullish sentiment reading from the
American Association of Individual Investors (AAII) plummeted over
13 full points last week, to 28.39. That's the biggest weekly
decline in over two years.
Ironically, plunging sentiment is a bullish indicator for the
As I've shared before, when bullish sentiment drops below 25%
during this bull market - which has happened seven times so far -
stocks rallied over the next three and six months every time
Long story short: Keep an eye on this week's sentiment reading.
If it dips below 25%, we should treat it as a reliable (contrarian)
Bullish Fundamental #4: Underinvested, Anyone?
The time to worry about a market top is when everyone is
invested in the stock market. That is, when stocks become a crowded
trade. And that's not even close to happening.
Consider: U.S. private pensions have only 35% of their assets in
stocks, compared to the long-term average of 45%.
As far as individual investors, they're being told to stay
The latest reading of
Bank of America's
) Sell Side Consensus Indicator came in at just 45.2%, compared to
a long-term average of about 61% and an all-time low of 43.9%.
Bullish Fundamental #5: Less Joblessness = Higher Stock
We'll save the debate over whether or not we can trust
government employment figures for another day.
Today, let's focus on the undeniable fact that initial jobless
claims exhibit a strong inverse correlation with stock prices.
Historically, as claims dip, stocks rally. (See here for pictorial
And guess what? Claims keep dropping. In the last week, initial
claims dropped 22,000 to 344,000.
The lower they go, the higher we can expect stocks to rise.
Bullish Fundamental #6: "Price is What You Pay. Value is
What You Get."
Long-time investors are bound to recognize the above quote from
Warren Buffett. Well, Mr. Buffett still believes that stocks
represent a good value.
He recently told CNBC, "We're buying stocks now. But not because
we expect them to go up. We're buying them because we think we're
getting good value for them."
And the data validates his assessment…
The Dow currently trades at 12.6 times forward earnings,
compared to its median valuation of 17.2 times over the last two
Meanwhile, the S&P 500 trades for 14.5 times trailing
If the bull market ended now, it would be the cheapest valuation
at a market top in history, according to LPL Financial's Jeffrey
In 2007, the S&P 500 peaked at 16.8 times earnings. And at
the end of the tech bubble, the earnings multiple reached almost 30
So, yes, even though it sounds illogical, stocks have been going
up in price for four years, but haven't gotten expensive.
Bullish Fundamental #7: Bet on Bernanke
"Central bankers rather than politicians are the dominant driver
of asset prices," says Bank of America's Chief Investment
Strategist, Michael Hartnett.
Sound familiar? It should, because roughly four weeks ago, I
current bull market isn't in jeopardy
of coming to an end until the Fed finally stops buying up
The Fed still holds the key to the end of this bull market. It
has no intention of letting up on the money printing yet.
So instead of fighting stock market prosperity - which is being
bolstered by monetary policy - embrace it!
Bottom line: Records are made to be broken. And I don't care if
the current bull market is getting a little long in the tooth as it
enters its fifth year. Given the current fundamentals, it's
destined to keep charging and set a new record. So don't miss