When I heard Jim Paulsen was reported to be negative on stocks right now it made me think about my own positivity for my shares in 2018. Jim is a smart guy and was one of the US equity experts who made me comfortable about my positive calls for stocks in the scary period of 2009-2010, post-GFC.

Jim is now chief investment strategist at the Leuthold Group and predicts a stock market correction in 2018, which is not really surprising, given the US stock market is up 240% since March 2009 and has gained over 20% this year.

So, Jim’s warning makes a lot of sense but it should not be taken that he sees a market Armageddon around the corner. In fact, he actually said he did not “see the end of the recovery”, nor did he think that a bear market was coming soon, but he did think we’d see volatility this year.

And, as he said this, I was thinking “buying opportunity” and then on cue he said the same thing!

The stars are aligning

We are living through a special time for stocks, with interest rates so low and all of the key economies of the world — the USA, Europe, Japan and China — all kicking into stronger than expected growth, which augurs well for Australia and South-East Asia.

I think we will break our own all-time market high of around 6800 this year and that could see me get a little more cautious on stocks rolling into 2019.

This year will bring rising interest rates in the USA and I will be watching the relationship between long- and short-term rates in the US and if short rates are higher than long rates I will start ringing the “recession beware” bell!

That said, it usually takes two years before this inverted yield curve of short to long rates on bonds causes a recession.

That means this bull market could have two years to run, however we are now in the volatile stage.

Given this bull market hits the nine-year mark in March this year, it does make me a little nervous but the history of US bull markets relaxes me a little.

I’d be more worried about the USA and a market shake out if economic growth was not happening there, but it is.

I tip we will see volatility this year, which is market code for big ups and downs for stocks, but I still think we will see a rising trend.

Wharton School professor, Jeremy Siegel at the University of Pennsylvania, who has been a big bull for years, now says the market is likely to go sideways in the US but he still thinks a 10% gain is possible. I think we will do better than 10%, given how much we have lagged Wall Street since the GFC.

The lessons of history

And this work I did on bull markets keeps me positive that I’m on the money.

Last year I looked at US bull markets way back to 1871 and this is what I found:

Bull markets since 1871

• Average gain 178.9%
• Average life 67 months
• Median gain 123.8%
• Median life 50 months

US Stock market now

• Gain 240%
• Life 106 months

Bull market 1949-61

• Gain 413%
• Life 151 months

Bull market 1975-87

• Gain 391%
• Life 153 months

Bull market 1988-2000

• Gain 516%
• Life 153 months

While the average numbers make you worry about Wall Street now, the big bull markets show that while the current US bull market has gone on for 106 months, the big bulls have run for 150 months plus.

And while Wall Street is up a huge 240%, the big bull markets have ranged from 391% to a whopping 516% in the dotcom boom!

The historically unusual period of very low interest rates has created another unusual bull market and President Trump’s tax cuts will help sustain the rally, so only a black swan event could prove me wrong.

As I’ve said, my optimism on stocks comes with the warning to expect volatility with the VIX or Fear Index in the US, ending the year at an end-of-year record low of 10.4.

For the record, very low VIX readings have come before a market collapse and so the doomsday merchants have been grasping for this card to warn us all about a bad 2018 ahead for stock market bulls.

Reuters says “the last time volatility sunk to levels this low was in the run-up to the financial crisis a decade ago and volatility then soared to a peak of 80.86 at the height of the global downturn in 2008.”

Global share prices surged $US9 trillion last year. Asian markets posted their best year since 2009, and European markets had their strongest performance since 2013.

So, what could rock us into a market crash? Experts point to North Korea, China and central banks raising interest rates too quickly.

The UK’s Sunday Telegraph referred to a study of 40 financial bubbles by the Swiss Finance Institute earlier this year, which found that in 65% of the cases, when they popped, volatility was subdued. However, and note this as a great kick in the pants to the fear mongers out there, “its analysts concluded that volatility is not a ‘reliable indicator’ of a stock market crash.”

I rest my case.

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