2014 has been a great year for the stock market. Positive investor sentiments and a bullish market are clear signs of this. The economy is seeing a great boost, with a growth rate of 5%. Unemployment charts are seeing a considerable fall, bringing in more good news for investors and the stock market. However, this is just the tip of the iceberg; the US stock market looks extremely inviting in 2015 for these five reasons:
1. Increase In US Corporate Profits
The U.S. corporate profits are witnessing a gradual increase since the past 5 years, which is bound to bring good news in 2015 for the stock market. The strong economic growth witnessed by the country will continue to help these companies grasp higher profits in the year 2015.
This chart depicts the U.S. corporate profits after taxes. Look at how the profits have been gradually climbing the charts, and will continue to maintain this growth in 2015.
2. Favorable U.S. Market Indicators
The U.S. market has been bustling with good news. First from the increasing corporate profits, then from the declining U.S. unemployment rate. The Fed had set a target to reduce the unemployment rate to 6.5%. But, the actual rate clearly surpassed the set expectations. The unemployment rate declined to 5.8% in November 2014. Apart from the declining unemployment rate, the U.S. job market is also showing positive signs, which should ensure growth in the GDP, and consecutively the U.S. stock market.
The sustained growth of the economy and addition of jobs in the year 2014 caused the unemployment rate to plummet, bringing cheers to not just the economy, but also stock market investors.
3. Attractive Stock Prices
Stocks remain priced attractively, especially when compared to bonds this year. Stocks usually sell near their historical average of close to 15 times earnings. The 10-year treasury is currently yielding 2.3%, well below its 6% historical average. This shows that the hurdle rate of stocks remain well below its average, making stocks advantageous to invest in.
4. Increase In Mergers And Acquisitions
The ongoing low cost capital, tax motivations, favorable job market, and the strong U.S. economy will continue to drive mergers and acquisitions, especially in the global arena. This will not just improve America’s standing in the global market, but will also boost company profits, which will benefit the investors.
5. Expect The Bull To Stay
The bulls will continue to stay in 2015; this is the view of over 10 successful stock market strategists, making the investment outlook for 2015 enthusiastic. The S&P index has already rallied 8.6% in 2014. If you throw in dividends into these, the total return becomes 10.1%. If you consider earnings driving stock performances, the outlook would seem extremely positive. The earnings growth might accelerate to 8.1% in 2015.
That said, although the bear ranks have skinned down considerably, many strategists are still banking on a volatile stock market in 2015. However, with several market factors at bay, investor confidence still remains hopeful and confident, which will be a key in keeping the stock market in check.