In between inspecting my kids candy cache for “safety reasons,” which is parent code for eating the Snickers bars, I read an interesting piece by Simon Constable via U.S. News. He starts out by stating:

“Believe it or not, there are still reasons to be bullish on stocks, and not just because pundits keep showing their angst on business TV. (They are often wrong.) Here are some key points for investors to consider.” 

Simon goes on to detail six reasons to be bullish on stocks:

While these are certainly reasons to be “hopeful” that stocks will continue to rise into the future, “hope” has rarely been a fruitful investment strategy longer term. Therefore, let’s analyze each of these arguments from both perspectives to eliminate “confirmation bias.” 

Global Economic Growth To Improve

Simon quotes Jeffrey Kleintop who states:

“The biggest focus is, ‘What is global growth next year?’ And some are worried that it’s slowing. But forecasts seem to be optimistic. They (the IMF) are better forecasters than the central banks.”

That statement is really a subject of interpretation. As shown in the chart below, economic forecasts are generally just about as wrong as weather forecasts. 

While the IMF, along with every Central Bank, are eternally optimistic that economic growth will return, each year has been an ongoing disappointment.

For investors, the problem is that now almost seven (7) years into an economic recovery, real economic growth, and inflationary pressures remain absent. 

More QE

It is the very lack of economic traction that leads to Simon’s second point for the bulls – more liquidity from Central Banks. To wit:

“Just as loose monetary policy in the U.S. helped boost stocks, the same is likely overseas. The economies of Japan and the eurozone are both sluggish, and it seems that both the European Central Bank and Bank of Japan will continue their so-called quantitative easing plans. Earlier this month, ECB President Mario Draghi hinted that there could be even more stimulus on the way.”

There is little argument that “QE” programs in the U.S. boosted domestic asset prices. But there has been little evidence since the start of the ECB’s own “QE” program that such benefit has been seen. 

Click on image to enlarge

The problem for the ECB, unlike the Federal Reserve, is that QE does not have the same migration of liquidity bank into the financial markets due to the fragmentation of financial markets across countries.