Troubles remain but the market ploughs on. The Dow Jones has made a new all-time high. The S&P500 is less than 2% away from its highest close.
The FTSE All Share is less than 3% away from its highest close. This will encourage many doomsayers to forecast the end of the world as these key levels are seen by technical analysts as offering resistance until they are breached, and support thereafter. Indeed the FTSE 250 is already 14% ahead of its all-time high and, adding in reinvested dividends, has returned 9% every year since New Year eve 1999 – during the so-called lost decade for equities.
Copious spare capacity (economist's jargon for unemployment) provides for a longer period of expansion than in previous market cycles (which end when wage inflation means interest rates must rise). This trend is echoed by our observation that shareholders are not allowing company managements the chance to destroy value with speculative acquisitions – as they do towards the end of bull market cycles.
There is also a manufacturing renaissance going on in the US as a result of cheap and plentiful energy and labour. This stands to drive the second phase of the globalisation process. Since the 1990s companies have been bolstering their profit margins by manufacturing in cheap labour markets. In this new phase of the market they will be able to cut transport costs and boost profits again as technology allows manufacturing to shift nearer to their end markets.
Reports of the equity market's death have been greatly exaggerated.