For one of the most complex “engines” on earth—the S&P 500—there is a way to get under the hood, look at the condition of the engine yourself, and independently verify what the experts are telling you.
However, all too often, many of us (even in the investment business) lift the hood, glance around, and make diagnoses a little too quickly, missing important details. Take a look at the chart below of the S&P 500 over the past five years and all you see is bull market...
If it looks like a bull, snorts and paws like a bull, and charges like a bull, it is a bull. And this is a bull market.
Absolutely, no doubt about it. It is one of the great bull runs in history—already 5 ¼ years old. On March 6, 2009, the S&P 500 was 676.53; on May 31, 2014, it was 1923.57. Total price appreciation: +284%. Compounded annual price appreciation: +22%!
We at UNIO believe that what is driving M&A activity is not so much confidence in the future as much as concern that revenue and profit growth will be harder to come by.
Revenue growth will struggle precisely because the economic landscape will be slow. Profit growth will be grinding because—at 50-year highs in profit margins—it will take every ounce of extra revenue to bring extra growth to the bottom line. We think CEOs and boards sense this problem lies ahead.