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(Image courtesy of Mario Tama/Getty Images)
courtesy of Getty Images
The month, as well as the first half of the year, came to an end yesterday. We started the year with the potential for a “replay of the late 1990s boom” in stocks and the economy, as I predicted.
With that in mind, the S&amp That’s significantly above the long-term average rate of stock appreciation, which is 8% each year.
Is this the end of the road for stocks, at least for this year?
Unlikely. Remember that the money supply has grown by 30% or more in the last sixteen months. There’s a lot of “money chasing too few assets” going on here. Add to that the fiscal and monetary stimulus programs are still in full swing.
It’s the equivalent of turning on a water hose and filling a number of buckets. Some buckets begin to overflow, which causes money to flow into buckets that can accept water. This is similar to what happens when money (over)flows into high-quality assets before being pushed into lower-quality assets. All of the buckets are overflowing before you know it, and the water continues to flow.
This is, of course, a formula for inflation, most likely rapid inflation. The asset boom will continue until the Fed stops fuelling it, starts pursuing it, and then regulates it.
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Keeping in mind my analogy to the late 1990s boom, here’s how the first six months and last six months of that boom period played out…
First six months of 1995 were up 19 percent, and the last six months were up 13 percent.
The first six months of 1996 saw an increase of 9%, and the latter six months saw an increase of 11%.
The first six months of 1997 saw an increase of 20%, and the latter six months saw an increase of 10%.
The first six months of 1998 saw an increase of 17%, and the latter six months saw an increase of 8%.
The first six months of 1999 were +12%, and the last six months were +7%.
As you can see, in each of the five years, a strong second half followed a strong first half.
What would be the catalyst for this kind of performance in the remaining months of 2021? Data from the second quarter.
In the next weeks, we’ll witness Q2 results that will much exceed those of the same period a year ago (at the depths of the crisis and the extreme of the economic restrictions). Not only will earnings expand dramatically, but the threshold for expectations has been set exceedingly low (despite the upward revisions). This suggests that in July, there will be a lot of favorable earnings surprises.
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