The preliminary Gross Domestic Product for the 4th quarter of 2012 printed minus .01%. That is not good. True, looking at the individual components shows some upside. Consumer spending grew 2.2%. Housing advanced off a low bottom. Tech spending was up. Inventories and exports fell while government spending, which needed to decline, did. However, our Government still borrowed a huge amount; $312 billion in the fourth quarter alone. (link). Overall, 2012’s GDP was about 2.2%. That is not good (link).
Yet the stock market looks to continue to rally. Is the market wrong? No. Up is up.
Lazlo Birinyi, a veteran market historian to be respected, argues that bull markets have cycles. He breaks these cycles into four stages: Reluctance, Consolidation, Acceptance, and Exuberance. These cycles are driven by psychology and play out despite other factors. Of course, a major event will dominate. However, desperate U.S. Government policy and the failing economic recovery, the debt tsunami in Europe, or the Arab spring have not broken this cycle.
Birinyi remains positive for 2013. He believes the fourth stage of Exuberance began last July. Furthermore, his analysis shows that, historical bull markets he sees as similar to today’s resulted in a 38% average gain.
“History never repeats itself, but it often rhymes” – MARK TWAIN