A commentary and perspectives on the new year from Todd Morgan, Chairman of Bel Air Investment Advisors. Todd says that the low interest rates and pension plans are fueling the current bull market. Bel Air is an investment firm that focuses on overseeing and managing over $8.7 billion in assets for 350 high-net-worth families, individuals and foundations, with a stated client minimum of $20 million in investable assets.
“I am a little surprised by the strong trajectory of the last month in this bull market. It has been very strong, and I think the reason for this is because of pent up demand and too much cash on the sidelines due to disbelievers. This is fueled by low interest rates and pension plans; pension plans can’t do it with bonds; therefore, you need to buy growth through the stock market. In general, people under own equities, and need a source for growth and income. Now, people are buying more stocks to make their earnings move forward in a higher favorable direction.
“The economy appears it is on an upwards growth with no recession in the near term.”
“Evaluations are on the upper end of historical and normal price earnings. In addition, this might be the beginning of the euphoria in the market, which could mean that we are coming toward the end of this upward trajectory and ready for some kind of correction in the next several months. I believe a normal 5-10% correction could happen, since we haven’t had one in a while. I’m not saying this is the end of bull market, but it is a pause to catch its breath, plus the corporate repurchase of equities is extremely important ingredient for this bull market.”
“From a psychological point of view, it could seem that the bull market is overbought since it is up 30% this year. But people don’t recall last year when we were only up 2%, so if you annualize the two years together, it is only up about 15% annually.”