At 4:00 pm on Wednesday, Aug. 22, 2018, the stock market did something it has never done before. It continued to grow for 3,453 days without a 20-percent correction. The current bull run started on March 9 2009, when the S&P 500 bottomed at 676. It never looked back; since then, it’s up 322 percent.
Why is this significant? Since 1972, the average bull market was 981 days, the average bear market 296 days. What is happening now is unprecedented.
{mosads}Why is this happening? One explanation is that the last administration was very punitive to business and the economy. It vilified the financial sector (remember the protests on Wall Street) and burdened the economy with one of the most regulated environments in history.
During this period, American entrepreneurs and businesses never stopped being entrepreneurial. They kept grinding away, albeit with a ball and chain on both ankles. Their potential was being stretched like an elastic band just waiting to be released.
Then with a swipe of a pen, the regulations were removed, corporate tax rates were slashed, and the economy exploded. GDP almost doubled in less that two years, and corporate earning began to grow at over 20 percent.
Small-cap stocks did even better. Domestic companies that had the majority of their revenues in the U.S. had no choice but to pay the highest tax rates, sometimes more than 31 percent.
In January 2018, their tax rates were cut dramatically to 21 percent, and they started spending on plants and equipment. Unemployment rates began to fall, and economic growth and cash flows began to grow again.
It was reflected in stock prices, and the markets powered up without a material correction.
No question, the political environment is crazy today, but if you are an investor, the policy is spectacular. It’s never fun watching sausage being made, but it sure tastes good when it comes out of the policy meat grinder pro business and pro growth.
What could end this bull market?
Bears focus on four factors:
- The Federal Reserve is raising rates.
- The labor market is getting tight.
- The real estate market is slowing.
- The credit cycle is coming to an end.
I’m an investor, I get up and worry about everything every day. It’s true that the Fed is raising rates, and many believe that bull markets are killed by the Fed overshooting and raising too fast.
Sometimes the Fed hikes rates because the economy is heating up, and it has a mandate to control inflation. Inflation is good for corporations as it gives them pricing power, and that means more profits, and profits are the mothers milk of stock markets. I think this scenario happening now.
It’s true that the labor markets are getting tight, but that just gives consumers more spending power. Housing prices are slowing in California, a bellwether of the housing market, but this is not the case in all markets; on the East Coast, real estate is still strong.
So is the stock bull run over? No one rings a bell at the top of the market telling you to sell, but I think stocks will continue to go higher because they still don’t have much competition.
Investors like me want to make at least 6 percent a year. I can’t do that with cash or investment grade bonds, so I’m sticking with stocks and good old American entrepreneurship and a government policy that is the most pro-business in 30 years!
Kevin O’Leary is chairman of O’Shares ETFs, a CNBC contributor and an investor on ABC’s four-time Emmy-winning Shark Tank.