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6 reasons to still love this market

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It’s been almost four years since the stock market embarked on this remarkable bull run. Since March 9, 2009, when the Standard & Poor’s 500 bottomed out, the market has more than doubled. After such an extended rally, it’s only natural to wonder if it’s time for the increase in stock prices to start petering out.

See also: 6 market predictions for 2013

But there are several signals indicating that there’s a possibility that the bull market still has a ways to go. Here are six indicators showing that there may be life in this market yet.

dart1. Consistency.

Last week, the S&P concluded its sixth straight week of increases. That marked the first time since last August that it had so many consecutive positive weeks.

Last month, the S&P notched eight straight days of increases. That may not sound like the most impressive winning streak ever, but the S&P hasn’t had a streak that long since November 2004.This market isn’t moving in fits and starts: It’s showing continuous, regular growth.


2. Foreshadowing.

The Standard & Poor’s 500 Index increased by 5.5 percent in the month of January, which is about half of a good return for an entire year. That kind of performance bodes well for the rest of the year. Birinyi Associates looked at the past 50 years, and found only eight other years in which the S&P had risen by 5 percent or more in January. In the ensuing 11 months, not even counting that January increase, the market has added an additional 12.7 percent.


3. Price to earnings ratios.

Bull markets tend to cause P/E ratios to run up. During the bull run that began in the 1980s and ended when the dot-com bubble burst in 2000, the collective P/E ratio for the S&P 500 rose from 7.7 to 28.6. But currently, the S&P 500′s trailing 12-month P/E is just about 14.4. That’s not just half as much as the P/E we saw when the tech fever faded; it’s even still below its long-term average of 15. 


4. Low volatility.

As of last Friday, the CBOE Market Volatility Index, also known as the VIX or the Fear Index, dropped all the way down to 12.5. That’s the lowest that figure has been since June 2007 – not just before the stock market crash but before the Great Recession even started.

The VIX, of course, doesn’t forecast a drop in the market; it forecasts volatility in the market. Those swings could be positive just as much as they could be negative. But it does show that investors have confidence in the market not to move out of control any time soon. At the very least, it shows that if the market does begin to decline, investors think it will do so very slowly and gently.


5. Dow Transportation.

There’s a longstanding theory about the relationship between the Dow Jones industrial average and the Dow Transportation index. Since goods need to be shipped, Charles Dow himself postulated back in the 19th century that the economy was at its healthiest when the Dow Industrials and the Dow Transports were moving together.

Last fall, it looked as if this indicator was moving towards “sell,” as the Transports started slipping while the Industrials continued to charge higher. But in December, the Transports started moving back up as well. For the first three weeks of January, the Transports index gained 10 percent, putting both it and the industrials near record-high territory.


6. The Fed

The Federal Reserve’s buying spree is going to continue. It’s already bought up trillions of dollars’ worth of assets since the financial sector collapsed, and it now plans to buy an additional $85 billion a month in longer-term bonds and mortgage securities for the foreseeable future. There’s little doubt that these purchases have helped prop up the price of stocks, and it’s likely they’ll continue to do so.

And they’re not the only central bank using such measures. The Bank of England has been buying up assets ever since 2009, and the Bank of Japan has announced that it will commit to unlimited asset purchases similar to the Fed’s beginning next year. These moves will help keep the global economy humming, providing American companies with worldwide markets for their goods and services.

For more from Tom Nawrocki, see: