Less than two weeks before the 1929 stock market crash, Irving Fisher, a U.S. economist, famously declared stocks had reached a “permanently high plateau.” In retrospect, it was super bad timing. Fast forward to now: U.S. stocks are trading near all-time highs and are on pace to record their tenth consecutive yearly gain. While it’s been an impressive multi-year run, are the stock market’s best days behind it?
Let’s examine four reasons why the upward trend in stocks may continue, at least through the end of this year.
Corporate Earnings
Thus far, 91 percent of companies within the S&P 500 have reported second-quarter earnings and the results have been very strong. The earnings growth rate for the S&P 500 during the second quarter jumped 24.6 percent from 20 percent back on June 30, according to FactSet.
While there have been scattered misses on second-quarter earnings, the overall trend has been up. And unless corporate earnings start to decelerate or fall, the latest results do not paint a bearish scenario for stocks.
Price Momentum
What about the price velocity of stocks? Is it up or down? One yardstick is the iShares MSCI USA Momentum Factor ETF (MTUM). The fund owns mid- and large-cap stocks that have appreciated in value over the past six and 12 months.
MTUM has outperformed the total U.S. stock market year-to-date with a gain of 9.8 percent versus a 6.9 percent rise in the Vanguard Total Stock Market ETF (VTI). Moreover, MTUM trades well above its 200-day moving average, which is another sign that U.S. stock prices among the performance leaders are still on the rise.
Sector Momentum
If the stock market is on the verge of an imminent crash, shouldn’t warning signs among key industry sectors be evident? Among the 10 industry sectors within the S&P 500, seven are ahead this year. And standouts like the Consumer Discretionary Select Sector SPDR Fund (XLY), Healthcare Select Sector SPDR Fund (XLV) and Technology Select Sector SPDR Fund (XLK) have beaten the broader U.S. market by a significant margin.