Are Stocks Really That Great for Growth?

Stock market bulls have been making the rounds on mainstream financial news shows trying to make the case that stock markets remain a great investment. Their views are based less on analysis of economic fundamentals than they are on analysis of financial data that isn’t necessarily indicative of anything. The fact that trillions of dollars of money flooded the financial system over the past decade and that high stock prices have always been the lagging indicator of financial bubbles seems to escape them.

Many stock market bulls are stuck in a 1980s and 1990s attitude. The boom market from 1982 to 2000 was historic, but it hasn’t been repeated. Back then the Dow Jones went from a low of under 800 points in 1982 to nearly 12,000 in 2000. Had the Dow continued that growth rate from 2000 to today, it would be over 175,000 points now. Obviously at 27,000 points we’re well short of that mark today. But the desire to believe that stocks will continue to gain in value remains omnipresent in the minds of the bulls.

You might hear some people say that because there isn’t “euphoria” surrounding stock markets that they couldn’t possibly be in a bubble. But euphoria hasn’t been a defining factor of bubbles. Yes, the dotcom bubble certainly suffered from euphoria, but the financial crisis-era stock market highs didn’t see euphoria. If anything, by the time stock markets peaked in October 2007 many investors were understandably nervous about the economy’s health given the problems that were occurring with Bear Stearns.

It would stand to reason then that investors would be nervous about the state of the economy today, given the ongoing trade war, the slowdown in global economic growth, and the potential fallout from the impeachment inquiry in Washington. The fact that stocks haven’t plummeted yet doesn’t mean they won’t, but the fact that they’ve plateaued means that we’ve seen about all we will out of this rally.

Anyone who looks at the performance of stock markets over the past two years can see that there just isn’t any more room for growth. Most of the gains in stocks have come about due to stock buybacks from major corporations, buybacks that will grind to a halt once those companies are no longer able to borrow the money they need to buy back their shares. It isn’t ordinary investors buying stocks, as most investors are still understandably wary about sinking their money into stock markets that lost over half their value during the financial crisis.

In fact, that wariness about stock markets is one reason that many investors are choosing to invest in gold, hoping to protect their retirement savings ahead of a market downturn. Gold has a proven track record of helping investors maintain their wealth through times of economic turmoil. During the financial crisis, gold saw significant gains while stock markets were losing money. Many an investor vowed back then not to repeat those losses, and to invest in gold the next time a crisis reared its head. Will you be one of those investors?