Ritholtz on Bulls and Bears

To determine whether you harbor a bullish or bearish viewpoint, writes Bloomberg columnist Barry Ritholtz, requires that you consider the causes of the current stock market rally.

Ritholtz, a self-proclaimed bull, offers a list of drivers in what he sees as the order of significance. Here are some highlights:

  1. Global economic expansion: “Monetary policy,” writes Ritholtz, “is being normalized; growth, employment and wages are mostly solid.”
  2. Earnings: Ritholtz points out that earnings are the underlying driver of stock prices and that they have improved in the U.S. and are recovering in emerging markets, Europe and Japan.
  3. Sentiment: While referring to the current bull market as most “hated” in Wall Street history, Ritholtz argues that “individual investors are back, mainly via indexing. This can lead to multiple expansion, or higher price-to-earnings ratios, which helps sustain a bull rally.”
  4. News: According to Ritholtz, it is “mostly irrelevant.”
  5. Monetary policy: He points out that central bank asset purchases and “zero interest” are ending, but markets are still rising.
  6. Fiscal policy: Perhaps the weakest support for the rally, says Ritholtz, is the promise of tax reform, deregulation, and the repatriation of overseas profits.

“If your order is the opposite of mine,” he says, “then you might be more bearish than I am.”