Will the rally on the American stock market enter its tenth year?

It was the declaration that became famous, when then-chair of the Federal Reserve Alan Greenspan warned about “irrational exuberance” in the US stock market back in December 1996, as market valuations were already considered exceedingly high.  Yet, that was just the beginning of the dot-com bubble which lasted for more than three years after the “warning”. Now, a leading investment bank, Goldman Sachs, is saying that the current rally in the US stock market is driven by “rational” exuberance. By this token, this rally could be poised to continue, yet everyone should be aware of the investment banks’ inherent approach to the stock markets as a glass half full.

There are sound fundamental reasons which seem to support such optimism. The growth in stock values is being driven by such factors as the strong labour market in the U.S., where the unemployment rate is at a 17-year low, while corporate profitability appears to be strong, as demonstrated by corporate profits’ share at 9.5% of the U.S. GDP in the second quarter of 2017 (as compared to the long-term average of 6.6%).  Proposed corporate tax cuts in the U.S. should continue to support this trend.

This has lead to the exceptional results for the main American stock index, the S&P 500: year-to-date it has risen by 18% and for the first time on record was up in every month of the calendar year so far.

At the same time, the mere fact that this rally, if it lasts, will turn nine years old in March 2018, makes market experts reflect upon its prospects. Many point to the fundamental strength of the tech sector as a major growth driver of the current market with tech giants like Apple, Google and Amazon dominating the top global stocks list by market capitalization.

Others point to the belief that corporate profits cannot grow at such a high pace indefinitely and that they may slow down at some point in 2018, which would slow down growth in the stock market.

But, most likely, the rally is not done yet, and 2017 will go down in history as one of the most successful years for the American stocks market.

Ukrainian Credit Union Limited