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Move Away Sceptics: Here Are 3 Reasons To Be Bullish On Stocks

Photo credit: Eva K.. Licence: CC BY-SA 2.5

The nine-year bull market that we are experiencing is the second longest bull run ever. Unsurprisingly, this fact has ruffled the feathers of some investors who do not expect the bull run to continue for much longer. They point to the fact that there has never been a bull market longer than 12 years. Even more worryingly, most bull markets do not even make it past the five-year mark.

However, these investors may have missed the point. When a bull market eventually ends does not merely depend on the length of the cycle. What really matters is whether investors have confidence in the corporate earnings and sustainability, and whether companies can maintain their strong performance.

With this in mind, I would like to point out three reasons to be bullish on stocks, still.

Robust global GDP growth

2017 was a surprisingly good year for the global economy. For instance, the US economy grew at 3% last quarter, Japan posted seven straight quarters of growth, and Germany’s economy expanded 0.8% in the third quarter.

Consequently, stocks have risen together with the economy, with most major indexes up by more than 12% this year.

2018 is expected to be very much the same. Analysts at Goldman Sachs forecast the global economy to grow at around 4% next year due to strong growth momentum, easing financial conditions and favourable global monetary policy.

US corporate tax reform

President Trump has proposed a tax reform that will cut US corporate tax rates from 35% to 20%. Although not formally announced yet, most analysts believe that the odds of tax reform by early 2018 are high.

A corporate tax cut will lead to cost savings and a larger bottom line for companies. This is good news for shareholders who will be able to reap more value in the stock market and will inevitably be willing to pay more for stocks.

Having said that, it is also important to take note that in the unlikely event that the tax legislation fails to go through, there can be a negative knock-on effects on companies and the stock market.

Record rising corporate earnings

The MSCI All-Country World Index, an index designed to provide a broad measure of worldwide equity markets, has seen its earnings per share rise to an all-time high of more than $30 per share.

Companies in the S&P 500 Index also saw its earnings increase by 6.2% year-on-year in the most recent quarter. Revenue has also risen at a comparable rate of 5.9%. Corporate earnings show no signs of slowing down. Analysts expect earnings per share to increase by more than 10% next year. All of these are good news for stocks, which mirror the performance of the underlying company profits.

The Foolish takeaway

There are many reasons to believe that stocks will continue to perform well in the coming year.

With all these catalysts in place, it does not matter how long the bull run continues, as long as the market realises the true potential of corporate growth and sustainability, we can expect to see even stronger equity markets in the near future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.