NEW YORK (TheStreet) -- The S&P 500, along with most broad-market index ETFs such as the SPDR S&P 500 (SPY), SPDR Dow Jones (DIA) and ProShares Q's ( QQQQ), made fresh all-time highs on the last trading day in March. Are such new highs fundamentally warranted?On a one-month view, fundamentals do not seem supportive. On a one- to two-year view, fundamentals appear to be quite supportive. On a secular view, the outlook is more worrisome. Overall, the outlook seems supportive, when one focuses on the cyclical fundamentals that tend to drive equity returns over the course of a one- to two-year time frame.
Second, most full-cycle macroeconomic indicators are actually flashing bullish signs, at the moment. For example, given high unemployment and relatively low capacity utilization, the economy has lots of running room before meeting any cyclical economic constraints. And on a rolling-three month basis, most cyclical economic indicators are showing acceleration. Thus, in the absence of some sort of external shock, the U.S. economy seems poised to accelerate beyond the 3% growth level before the end of 2013. Third, monetary conditions are supportive of the U.S. and global economies, and according to Federal Reserve officials, highly accommodative monetary conditions are likely to remain in place for at least the next 12 months.
It is my view that there are not sufficiently clear reasons, on balance, to strongly support the view that productivity growth will be significantly higher or lower than it has been on average in the past decade. The outlook on energy is similarly murky, on a secular basis. The cyclical fundamentals in the energy industry are undeniably bullish, given technological advances brought about by companies such as Schlumberger ( SLB) in U.S. natural gas fields, as well as exciting developments in the alternative energy arena being spearheaded by companies such as First Solar ( FSLR). Bullish developments in the area of energy conservation and conversion being pioneered by companies such as Tesla ( TSLA) are also reasons to support optimism. However, these bullish cyclical developments are occurring in the context of an undeniably bearish long-term trend of relentlessly rising costs per unit of energy produced. In the long run, there is a gargantuan battle that is taking place between the Malthusian constraints brought about by resource scarcity and the liberating forces of human ingenuity. In the energy arena, it is not yet clear how this portentous battle will ultimately play out. Thus, the overall secular economic outlook is not supportive of high average long-term valuations. High debt and deteriorating demographic profiles are unambiguously negative factors that, all other variables (such as the outlook for productivity growth) being equal, must cause long-term growth to slow relative to historical averages. A final note on the secular time frame: When analyzing investment prospective -- investment returns on a long-term time frame -- it is worth noting that even very low prospective historical returns on equity investments on a secular basis must be evaluated against the prospects for alternative investments in the fixed income arena, where prospects appear even worse on a secular basis.
However, in a secular time frame, the prospects for equity returns are unappealing. But these prospective returns must be evaluated against the prospective returns on cash, quasi-cash and fixed-income securities. Thus, putting this all together, it appears that fundamentals overall seem to be supportive of the recent all-time highs on a cyclical basis and that, in the absence of major external shocks, they could continue to be supportive of equities for the next one to two years. At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.