"Be a bull, be a bull. The whole world loves a bull…"
Cole Porter may be spinning in his grave in response to the violent assault on his 1948 ditty, but the lyrics and upbeat melody do chime with the views of a growing array of investors.
The S&P 500 finished Friday at a second consecutive record high, and major indices have now posted gains for four straight weeks. To be sure, the earnings announced Thursday by technology sector heavyweights Google and Microsoft were disappointing, but analysts had predicted that tech companies were likely to deliver the weakest crop of earnings from amongst the 10 S&P 500 sectors; the only question was just how weak they would turn out to be.
In spite of the anemic performance on the part of those technology stocks, investors and market pundits are finding plenty of reasons to celebrate and be bullish. The stock market swoon that Federal Reserve Chairman Ben Bernanke triggered when he began discussing tapering off the Fed's support for bond markets now seems to have run its course.
Since its revival, and as of Friday's close, the S&P 500 has finished 11 of the last 12 trading sessions in positive territory, leaving the index up 18.64 percent for the year so far, and giving investors a total return (including dividends) of about 20 percent, according to calculations by Howard Silverblatt of S&P Dow Jones Indices.
So, why should you be a bull? Herewith, some views from those who already have ensconced themselves in the bullish camp.
Interest Rates: In his most recent pronouncements, Ben Bernanke has taken tremendous pains to inject some calm into financial markets, reassuring investors that he and his fellow policymakers aren't going to suddenly reverse course and start boosting short-term lending rates. The result? The market has suddenly recalled that it's a good idea to listen to the Fed, and given that Bernanke just addressed Congress last week, there's plenty to digest, much of it aimed at reassuring the markets.
"As long as we do not see a significant increase in yields, stock markets can continue to advance," Russ Koesterich, global chief investment strategist at BlackRock, told clients in a note published at the beginning of last week. The reason for this is fairly straightforward: As long as earnings continue to increase while bond yields linger near historic lows, the risk/return tradeoff favors stocks.
Fund Flows: Investors have been eager to chase the market higher, adding to their stock holdings as indices have climbed. (Data from Lipper suggests that in the first half of July, equity mutual funds saw a net inflow of some $30 billion, about the same as was recorded throughout the whole month of May, the last month for which Lipper has reported official data.)
Money flows like that are one of the biggest reasons the analytical team at Birinyi Associates remains upbeat about stocks. "Despite all the vicissitudes, gyrations and issues," they note in a report last week, "we have not seen any selling into strength." In other words, investors don't appear to have been made nervous or anxious by the string of new highs recorded by major stock indices over the course of 2013, seizing on them as an excuse to lighten up their exposure to stocks.