As politicians debate whether Americans are better off than they were four years ago, the stock market is saying yes.
With 50 days before the national election, the Standard & Poor’s 500 Index has rallied 82 percent to a four-year high since President Barack Obama took office. The advance puts the gauge 6.8 percent from its record, closer to the all-time high than any of the world’s biggest stock markets, data compiled by Bloomberg show. The benchmark index of American equity is trading at 14.9 times reported earnings, the biggest discount to MSCI’s global measure since March 2010.
While bears say the index has risen too far, too fast given U.S. unemployment has remained above 8 percent for 43 straight months, bulls point to record earnings forecasts as evidence the economy and stocks have room to improve. Jim Chanos, who oversees about $6 billion at Kynikos Associates and profits from betting against individual stocks, says America is doing better. Goldman Sachs Group Inc.’s Abby Joseph Cohen says the firm’s “most thoughtful” clients are growing more confident.
“We are in a healthier state right now,” Chris Hyzy, who helps oversee about $325 billion as chief investment officer of U.S. Trust in New York, said in a Sept. 12 phone interview. “Next year, we think the growth clip in the United States and the globe is going to be better than expected. Over the next three years, we are bullish.”
Jeffrey Gundlach, who oversees $40 billion as chief executive officer of Los Angeles-based DoubleLine Capital LP, said last week that stocks won’t repeat the poor performance they had from 2000 to 2010, when the benchmark index tumbled 14 percent. He has shifted from his pessimistic views in October 2009, when he said a 61 percent gain in the S&P 500 following the 57 percent rout during the financial crisis wouldn’t last.
While economists predict slowing U.S. growth next year, equities are pricing in a faster expansion, if election-year history is any guide. Every time the S&P 500 posted an annual return above its historical average, U.S. gross domestic product has accelerated the following year, according to data compiled by Bloomberg of the eight elections since 1948 when an American presidential incumbent was seeking a second term.
The S&P 500 has risen 17 percent this year through last week, led by gains exceeding 92 percent in PulteGroup Inc., Sprint Nextel Corp. and Expedia Inc. The advance in the U.S. equity benchmark is 5.1 percentage points more than the election year average, data compiled by Bloomberg show.