A Signal that the Bull Market is here

One would have thought that last week would have been a terrible week for stock markets. We had China raising interest rates for the 4th time since last October, ECB also jumped into the act, raising interest rates by 0.25%, Portugal had to go to the EU and IMF requesting to be bailed out, and to top it off, long suffering Japan experienced a 7.1 scale earthquake “aftershock”. However, Asian markets, including the STI index has been going from strength to strength this week, and almost all markets are higher on Friday close compared to where they started out on Monday (including the Japan Nikkei 225 index!).

What is happening? The key thing is that many of these news have all been factored into markets already. The first time something unexpected happens, it hits markets, people worry about it, and markets react. But the second time, the third time something similar happens, markets will hardly react to it because they worried about it so much previously the first time already. And often, the concern was overdone. The first time China hikes rates, markets feared on whether its economy would stumble into a halt. Now, 4 rate hikes later, and with the China economy still showing strength, China markets no longer react when a rate hike is announced.

Similarly, the first time the European financial crisis took hold, there was a substantial dip in global markets. When the second country went to the EU and IMF for money, there was a reaction too, because it seemed to affirm worries that this might spread. But by the time we come to Portugal requiring a bailout, markets have long moved past this because the previous round, they were worrying whether all the PIG countries and even Spain would require a bailout, so this news is now having little impact on stock markets here.

Japan’s 7.1 scale aftershock last week also did not stop markets from their upward move. It was far milder than the scale 9 quake, but it drove workers temporarily from the stricken nuclear power plant. Nevertheless, even the Japan market itself also ended the week higher.

I believe we are going into bull territory now. When you have so much negative news happening in one week, and yet it fails to faze investors, that means that most of these bad news are already priced in already. So, if that’s the case, it would take something totally new, unforeseen to cause further negative reaction. Otherwise, if more news going forward is still on things like China tightening, bailouts in Europe, or the Japan nuclear power plant, then these are not going to prevent markets from their upward trend going forward.

But there will not be a trigger or event for a bull run. There never is. Things like improving earnings, a recovering US economy and Asia continuing to power ahead in growth are not one off events. They don’t happen over one or two days, nor are they dramatic in any way. So, if you are looking for an obvious event driven signal that the bull market has arrived, you won’t be able to find one. But for me, the past week of market resilience, and strength despite so much negative news happening in the week is that signal to me that a bull market is up ahead. By this time, I am already fully invested. I look forward to how markets will turn out in the coming months with great interest and anticipation.