This fact is confirmed by GFD’s Indicator of global bull and bear markets which sums the number of bull and bear markets that begin or end in each year. This indicator which covers over 100 years of global stock market data hit its highest number of bear markets since 2009 in 2016. The United States stock market did not participate in the global bear market that stocks endured between July 2014 and February 2016. During that period of time, the United States stock market treaded water, moving sideways rather than falling into a bear market as most of the rest of the world did. We are of the opinion that we are not in the ninth year of a bull market, but only in the second year and that the current bull market is likely to push forward for the rest of the decade. While the 2009 to 2016 market cycle was driven by exceptionally low interest rates, this will not be true in the market cycle that has begun. This market will be more like bull markets of the past because interest rates will rise, not only in the United States, but in Europe, and sometime in the 2020s we are likely to suffer another bear market. We have two years under our belt, and global stock markets are all moving up together. We probably at least two more years to go. So enjoy the next two years of growth in the global stock market.

Global Financial Data has reorganized its sector and industry classification system to make Communications a separate sector. The introduction of the internet 25 years ago has transformed the world and will continue to change the global economy in ways we still cannot predict. Many services which formerly were provided through brick and mortar stores are now provided online. Businesses which formerly were included in Consumer Discretionary, such as Media and Broadcasting or the Internet in Information Technology have more in common with each other than was formerly realized. A company such as Amazon not only has a huge retail business, but also hosts huge amounts of data on the cloud and provides streaming services for video and music. Netflix not only rents and streams video, but produces its own movies and series, as does Amazon. These changes have caused a re-evaluation of the classification system of industries and sectors by all of the index providers. GFD’s goal is to create a sector and industry classification that reflects not only the present, but the past, to help its subscribers to analyze the market and determine which sectors and industries outperformed or underperformed the market today or 200 years ago. After all, finding the high alpha stocks and why they had a high alpha is the whole point of analyzing the past. The Communications Sector has been broken up into several industries. The components of the Communications Sector are Advertising, Broadcasting, Entertainment, Publishing, Internet, Telegraph Cable & Express, Telephones and Retail – Internet and Media. By making these changes, Communications becomes the second largest sector in the United States after Finance, in part because several of the largest companies in the world, Alphabet, Facebook, Amazon and others are now part of the Communications sector. If you look at only the Telecommunications sector, it represents 4.69% of the total market cap, but the Communications sector represents 12.53%. GFD will revise the historical data for all of our GFD Indices to reflect these changes. Our Communications Sector Index is a Communications sector index from the 1800s to the 2000s. Other index providers will introduce these changes this year and keep their old indices as they were. S&P’s Communications sector will actually be a Telecommunications sector through 2018 and a Communications sector after that. The reason is the recalculation would affect not only the historical data for Communications, but for Consumer Discretionary and Information Technology as well. Only GFD’s Communications Sector provides true Communications 150 years of true Communications data back to its beginning. The Communications Revolution has transformed the world and now it is transforming stock market indices. To follow the path of changes in Communications over the past 150 years, GFD’s sector capitalization tool provides the perfect means of analyzing these changes. Welcome to the communications revolution.

But what if there is no central bank and no treasury bills? This is the situation that the United States faced between 1836 and 1913 when the Federal Reserve was established and before 1918 when the Federal government began issuing treasury bills to cover its borrowing needs. Unlike most European countries, the United States almost managed to pay off its debt before World War I commenced. The easiest solution would be to use commercial paper as a substitute for Treasury bills. Since the risk of the issuing bank defaulting is low and the bills’ maturity is only a month or two, they would seem to be the best substitute for Treasury Bills. The problem with this solution is that when you calculate the rate of return over time, before 1918, commercial bills provided a higher return than Government bonds! When we put together a risk-free bill series to compare with Government bonds in the United States between 1835 and 2017, we found that the bills outperformed the government bonds until World War I when treasury bills were introduced and bonds outperformed bills between 1918 and 2018. Clearly, this was not a solution. There were periods of time in the nineteenth century when commercial bills paid lower returns than government bonds, and there were periods when they paid higher returns. The solution seemed simple, use the coupon rate on government bonds as the basis for the risk-free rate of return, but during those periods when commercial bills paid a lower yield than government bonds, use commercial bills. This solution worked! Risk-free bills provided a lower rate of return than risk-free government bonds and the balance between bills and bonds was restored.

Data on market tops and bottoms for over 100 world markets is available through our Events-in-Time tool, and the summary numbers for global tops and bottoms are available through our GFD Indices. By our count, there were 47 market bottoms in 2016 and only 2 market tops, giving a net score of -45. This was the lowest score global markets had seen since 2009 which had a score of -53. It didn’t take artificial intelligence to figure out that 2017 was going to be a banner year. 2017 was a year in which all markets moved upward in sync. There wasn’t a single major market in the world that hit a bottom. The S&P 500 was up 19.4%, MSCI’s EAFE index was up 21.8% and MSCI’s Emerging Markets were up 34.3%, and that was before dividends! 2017 was one of the best years in the 21st Century. Part of the problem from American investors’ perspective was that even though many European and Asian markets hit a bottom in 2016, the United States did not since it has been a global market leader since the Great Recession of 2009. US markets did sell off in August 2015 when Brexit was approved by the British electorate, but the market put in a double bottom in January 2016, and the trend has generally been straight up since then. In 2017, five markets hit a bottom and three markets hit a top. None of the markets hitting a top or bottom was a major world markets. The five hitting tops were Bosnia-Herzegovina, Côte d’Ivoire, Nepal, Qatar and Tanzania. The three hitting market tops were Iraq, Mongolia and Pakistan. Only 2018 will tell whether these nine markets bounce back. And the forecast for 2018? High numbers of markets hitting bottoms exceeding the number of markets hitting tops only happens every five to seven years. During this century, this occurred in 2003, 2009 and 2016, so this data generally portends positively for global markets for the rest of the decade. 2018 will probably be more volatile than 2017, but there is little reason to believe that 2018 and 2019 won’t be a great time for investors worldwide. Our advice, ignore volatility and stay in the market for 2018. We’ll let you know how our prediction went in a year.