“None of us can remember a time when what was good for companies was so bad for the economy, and vice versa,” Adam Parker, chief market strategist at , wrote in an analysis in which he attempted to discern what previous market year most closely resembled current behavior.
His conclusion: There really is no clear correlation from the past, be it the extreme-interest-rate low price-to-earnings of the 1970s, the tech bubble years of the late 1990s or the pre-crisis climate of 2004-6.
“This year is different from any other that any of us have seen in our investment lifetimes,” Parker said. “Most people moving markets formulated their successful playbooks and investment mantras over the last 40 years, and 2013 just seems to be like too many different years in the past to make any sense. People can’t find a year or time period they remember that’s like today and it’s creating confusion.”
For investors and companies alike, that confusion has caused behavior that errs on the side of risk.
On the investor side, money has been piling into stock mutual- and exchange-traded funds. October has seen another $43.5 billion of inflows, making it the sixth-highest month on record, according to data firm TrimTabs.
From the corporate side, companies have been slashing share count and buying up their own stock. Companies have purchased more than $131 million worth of shares just since August, TrimTabs said.
Meanwhile, capital expenditures have been below historical norms and hiring remains mired within a modest range, exemplified by the October jobs report that showed just 148,000 net new jobs created.
It’s a formula that has pushed up the stock market index by 21 percent in 2013, even though economic growth remains lackluster as hiring has been tame and some of the housing numbers begin to weaken.
For the time ahead, Parker believes 2014 earning estimates are too high, which currently see growth at 10.75 percent for S&P 500 companies, according to Capital IQ.
But in a comment telling of the current climate, he said, “We also continue to think it doesn’t matter.”
“What’s good for corporate profitability is incongruous with what’s good for the economy,” Parker said. “Companies don’t spend, so their margins stay high. The economic growth is muted so the policy makers remain accommodative.”
Indeed, it is a market that these days seems completely preoccupied with monetary policy.
More than the $85 billion in bond purchases the zero interest rate policy has helped companies rack up $13.1 trillion of low-cost debt while keeping their collective balance sheet bloated at $1.8 trillion.
While that that historic level of Fed accommodation has coincided with huge levels of wealth disparity and 10 million more over the past four years—a 26 percent increase—the demands of shareholders likely will outweigh any collateral economic damage.
In other words, don’t expect the Fed to begin raising rates anytime soon.
“Frankly, we think they will tighten sometime between 2016 and never,” Parker said. “So, we are currently still dreaming that the Fed’s accommodation can be supportive of further multiple expansion because it’s tightening, not tapering, that matters, and this won’t happen for a long time.”