Stocks: Has this bull run too far?

Why has the stock market soared so high, and can it really last? said E.S. Browning in The Wall Street Journal. Certainly some of the “fuel” for the recent bull market has come from the “trillions of dollars in debt-financed stimulus that the world’s governments and central banks have been pouring into economies.” Optimists argue that stocks are merely still recovering from the 12-year lows they hit in March. If a “real economic recovery” is just around the corner, then “the stock gains make sense.” Yet for the most part, the “huge gains have left investors surprisingly unsatisfied,” and professional money managers remain skeptical about the market’s long-term prospects. “I think eventually it does end badly,” says Gordon Fowler, chief investment officer for Glenmede Trust.

Certainly mutual fund investors aren’t convinced the rally is for real, said Mark Hulbert in The New York Times. Fund investors typically shift large amounts of money into stock funds as the market goes up. But over the past eight months they’ve “veered sharply from this historical pattern.” Between March 9 and Oct. 19, net inflows for domestic equity funds were less than $8 billion, according to TrimTabs Investment Research. In “a normal market,” we’d expect a spike of $150 billion. We may be “witnessing a so-called cyclical rally within a long-term bear market in stocks, not the start of a major bull market.”

Skepticism about soaring stock prices certainly seems in order when “the underlying economy doesn’t seem to justify optimism,” said Daniel Gross in Slate.com. Given the high unemployment rate and shaky consumer spending, “it’s possible that the stock market is just getting it wrong again.” On the other hand, it’s also possible that the stock market could soar for years. How? The Dow and other major indexes are a reflection of the fortunes of the large multinationals, “not Main Street businesses.” And the U.S. economy simply matters less to the global economy than it used to. Though demand for U.S. products and services may be down at home, it’s growing globally. For example, sales of GM cars in China “are rocking.” That’s good news for GM shareholders and executives—but it does little for the U.S. economy.

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