Long Live The Bull Market - Half The World's Stock Markets Are Now In A Bull Market

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Summary

Using the rule of thumb of a 20% gain constituting a bull market of 70 countries examined, just over half were found to be in a bull market this week.

We can actually use this approach to create an indicator that is helpful for market timing of global equities, and at present, the indicator is sending a bullish signal.

Looking at a similar approach to tracking fundamentals reveals that beyond the price signal, there is also a bullish fundamental signal.

Defining whether a benchmark or stock price is in a bull market or a bear market is not as straight forward as it might sound, there are a lot of nuances and "ifs" and "buts". That said, one rule of thumb is that a bull market is when the price is up more than 20%, and a bear market is when the price is down more than 20%.

So armed with the knowledge of what constitutes a bull market, here's a question: how many countries in the world are currently in a bull market?

The chart shows the proportion of countries have seen their main benchmark index rise more than 20% off the low (in this study there are 70 countries, and I used a 52-week window for simplicity). And, as you can see in the graph, and as you might guess from the title, just over half of those 70 countries are now in a bull market as defined here.

Looking at the chart, you may notice a few things.

First is the indicator really fires up at the start of a bull market e.g. 2003, 2009, and again around the start of the QE rally. Second, it goes low, like almost to zero, at a major market bottom (e.g. at the end of 2015). Third and final, the MSCI ACWI (All Countries World Index) in local currency terms just made a new all time high last week. What does that add up to? In my opinion, a new bull market for global equities.

Interestingly enough, this comes at a time when the proportion of countries seeing contracting forward earnings has dropped to a two-year low.

Thus, there is clearly a fundamental case for it, and certainly if you look at the global manufacturing PMIs, there has been a notable improvement in the latter part of 2016. Thus, at this time, the weight of evidence suggests now is time to be an optimist not a pessimist on global equities.

This article originally appeared here.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.