David Vomund

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May 7, 2014
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Market Pulse: What moves stocks?

Investing in stocks is all about future interest rates and earnings. Always was, always will be. The interest rate picture, barring some huge surprise, is set. Janet Yellen more or less said the Fed will keep rates low at least for the next two years.

Only a surge in inflation or GDP growth much beyond 3 percent annually would change that. I rule out the former. There is simply too much excess labor capacity here and overseas.

One should focus on earnings. Not last quarter’s or last year’s, but 2014 earnings and more important the outlook for next year. The recession ended five years ago, yet GDP growth is still sputtering along at roughly 2 percent.

Without much top-line growth in a slow economy, companies have tightened their belts, refinanced debt at low rates and laid off workers. The result: profits have surged right along with stock prices. That is history. We can’t profit or lose from what has already happened. Future results are all that will matter.

Like many, I expect the economy to pick up after the winter slowdown and there are signs of that now. Purchases that were postponed due to the weather will appear in the second and third quarters.

Retail sales are picking up as are orders for durable goods. We learned last week that 288,000 jobs were created in April, the second-best month since the economy emerged from the recession in mid-2009. The picture is improving.

Profits for non-financial S&P stocks are likely to grow this year by at least five percent. What if that is too optimistic? Valuations and dividend yields will support stocks.

The stock market spends most of its time, whatever the focus, in transition from being too cheap to being too expensive or the other way around.

And now? Even though stocks are up 180 percent since the 2009 low, they are not expensive because earnings have risen as well. Earnings are a positive.

Interest rates will stay low well into next year, maybe far beyond. Another big positive. And then there is really no alternative to stocks. Another positive.

The positives outweigh the negatives and will for the foreseeable future. That’s why we are not close to the end of the bull market. The stars are aligned.

David Vomund is an Incline Village-based fee-only money manager. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.


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Tahoe Daily Tribune Updated May 7, 2014 07:31PM Published May 7, 2014 02:48PM Copyright 2014 Tahoe Daily Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.