Five Reasons To Stay Bullish

Aaron Hodson Aug 02, 2014

With markets at record highs, the question of when there is going to be a market crash or correction always comes up. Investors seem to want the market to drop, maybe so they can invest more. Who knows?

But to make a point that, maybe, things are not too bad, here are five reasons to be bullish on equities right now, and some stock ideas as well. In a future column, we will offer five reasons to be bearish, but let’s start with the positive since it is a summer long weekend.

Dividends Are Increasing

Two companies in Canada on Thursday announced dividend increases: CCL Industries Inc. raised its dividend by 20% and Home Capital Group Inc. raised its by 12.5%.

Dividend increases indicate things are currently going very well at the companies and that they still have a positive outlook on their business prospects. Both are very positive signs.

The market has ignored Fed tapering

Pundits earlier last year were calling for a market disaster when the U.S. Federal Reserve started to taper. Guess what? Not only has the Fed started tapering its bond purchases, it has almost finished (tapering is expected to end in October).

The economy is off life support, moved into the recovery room, and is now ready to be discharged from the hospital. Markets are at record highs, and investors have adapted nicely to tapering, completely ignoring it really.

Earnings are strong

S&P data this week showed 75% of reporting companies beat earnings expectations in the second quarter, and 66% of companies beat revenue expectations.

Growth is back, with companies as diverse as DH Corp., CCL Industries, Wi-Lan Inc. and Facebook Inc. reporting quite solid earnings. Corporate earnings, of course, are a key driver of the stock market — so far, things look very solid there.

Investors are worried

It is very hard to actually get a market crash or correction when everyone seems so worried about one.

Investors are selling early, fearful of a market drop. But all that does is keep valuations low, and sets up future buying when those sellers realize it is still safe to go back into the market.

We are seeing a lot of buying on dips (rare that they have been), which is generally a positive sign for future market performance.

The economy is strong

U.S. GDP is expected to be in the 4% range this quarter. Unemployment is falling fast. Commodities look set to do much better.

If this scenario seems familiar, it is. These are typically the exact signs of an improving economy. The fundamentals are good, and that is why investors seem to do nothing but buy these days.

Conditions are not perfect (that’s the real time to sell), but improving slowly and steadily: more fodder for the bullish stance.

There you have it. Of course, markets will do what they want, and we have lots of things to worry about. Next time, we'll give five reasons to get out of the market.

 

3 comments

Comments

Login to post a comment.

S
Shelley
Aug 8, 2014
Thanks for adding this timely expert perpective while volitile markets and lots of biased opinions are everywhere.
M
Mark
Aug 3, 2014
So are there reasons to be a bear?
r
ron
Aug 3, 2014
Thank you for the encouragement. I find it difficult not to be caught up in the "correction will happen mode".