Why All the Bullishness in the US Stock Exchange?

The U.S. stock exchange has recently hit new heights. The Dow Jones index just recently closed at nearly 16,000. The S&P 500 hit 1,808 points on Dec. 9, setting a record high. In November, the NASDAQ hit a 13-month high, marking an increase of 4,000 points. Contrasted with the aftermath of the 2008 global financial crisis, America’s basic economic growth has hovered around 2 percent. During this period of recovery, the U.S. stock exchange has continued going strong — so why such a bullish attitude?

First of all, the U.S. domestic economic base has stabilized. At present, growth rate data, employment data and real estate market data have all been showing signs that the U.S. economy has recovered. In addition, the Fed’s “quantitative easing” policy has been pumping liquidity into the market, compounding that with the recent flood of foreign investment returns leaves a considerable number of U.S. employers flush with cash. All of this has served to prop up the stock market.

Secondly, taken as a whole, U.S. listed companies are really darlings of the stock exchange. After the financial collapse in 2008, the U.S. economy sunk into a recession for the fiscal year. In 2009, it broke free of the downturn; thereafter, the U.S. domestic gross domestic product has increased by approximately 2 percent. In contrast, U.S. listed companies are doing considerably better. In the 2012 fiscal year, U.S. S&P 500 stock profits increased by 14.4 percent. According to estimates, when adjusting capital growth figures for the effects of inventory and depreciation, profits are up 31.2 percent. Just looking at the index of listed companies, the top 10 is almost entirely dominated by U.S. firms, the majority of which are on the cutting edge of current trends, setting the foundation for the market’s current rise.

Lastly, fine administrative structure allows these top companies to take proactive measures to ensure a return to the stockholders. Through systematic administrative planning, the majority of these U.S. companies’ corporate hierarchy, boards of directors and stockholders combine to form a profit-making body. These companies take active measures to ensure returns to their stockholders. Some pay cash bonuses; others, who have large cash reserves, choose to give shares. The S&P and Bloomberg News’s statistical analysis shows that in 2010 and 2011, American corporations paid out an approximate total of $708 billion in stock dividends. For example, from the 1970s to the end of 2012, IBM, a company that has been in operation for over 100 years and is a leading figure on the U.S. stock exchange, simultaneously increased bonus payouts — totaling only 1 to 2 percent in the 1950s and ‘60s, but 54 percent in 1978 — and maintained stock payouts, to the tune of more than $11.7 billion.

What’s worth pointing out is that, to a large degree, the prolonged boom of the U.S. stock exchange can be attributed to the 401(k) retirement fund plan that began in the 1980s. Under this plan, the funds purchased by these pension accounts provide the U.S. capital market with an unending supply of capital. One could say that with this money, the American stock exchange is permanently liquid, as if imbued by the flows of living waters running into it like a river. What’s more, long-term investors are constantly entering the market, creating a stabilizing effect amidst all the wild undulations. This is a prime factor that has allowed the U.S. stock market, even amid economic decline and recession, to continually remain bullish.