A 36 per cent rise in the Straits Times Index last year was followed by another 22 per cent so far in 2007. Along the way, dozens of all-time highs have been set and turnover regularly crosses $3 billion daily, a level never seen with such regularity in the history of the local stock market.
Heady stuff indeed, so if you accept that the stock market is an efficient discounting mechanism of future prospects, then only one conclusion is possible - the outlook is overwhelmingly positive. But is it really that good? Or is there room for some scepticism?
One main reason for thinking that outlook has never been this good is the longevity of the current stock market run which stretches back to the Sars epidemic and the Iraq war of 2003. Even when the market hit its two previous purple patches during the past 15 years, namely in 1993-94 and 1999-2000, stocks were not the long-lasting stellar performers they are today.
Back then, both rallies proved relatively short-lived - the 1993-94 run really only started in mid-93 before SingTel listed in October that year, and it ended abruptly when the US Federal Reserve hiked interest rates unexpectedly in Jan 1994 while the 1999-2000 run, which had its roots in the dot-com bubble, ran into major headwinds when Nasdaq crashed under the weight of over-hyped expectations, under-researched risks and inadequate fundamentals.
This round though, the rally that began some four years ago suggests that investors seem to have bought - and bought heavily - into the theme that 'this time, it's different'.
Cynics might quite correctly point out that the same mantra accompanied the 1999-2000 rally when 'new economy investing' was bandied about as a catch phrase to justify that things were different with the advent of the Internet.
Back then, investors were suckered into buying the idea that earnings didn't matter because once Internet firms got their business models up and running (incidentally, whatever happened to 'B-to-B' and 'B-to-C' portals that were supposed to revolutionise businesses?) then the rewards were theoretically unlimited.
This time though, the 'this time is different' theme rests on something completely unrelated - the rise of China and India as economic superpowers to probably replace the US as the main engines of global growth. Because of the fiery, double-digit growth both countries are enjoying and because of the exposure this part of the world enjoys to China and India, this rally has undoubtedly been built more solidly on earnings and superior growth, unlike the flimsy 1999-2000 run.
There's no arguing with this. However, less advertised is the fact that the real source of the boom was US Federal Reserve then-chairman Alan Greenspan's decision to slash US interest rates in 2000 to one per cent to stave off the inevitable recession caused by Nasdaq's crash.
By flooding the market and economy with cheap money - and with markets everywhere deregulating thus making it easier for hedge/private equity funds to set up business - markets were flooded with abundant liquidity which in turn, pushed stocks up.
Enhancing this liquidity-driven boom were comments by incoming Fed chief Ben Bernanke to the effect that if US economic growth were to be threatened, the Fed would drop money out of helicopters to save it (hence the nickname 'Helicopter Ben').
This assurance and the huge US housing boom created by easy money injected a large dose of complacency into markets everywhere, leading to arguably, significant underpricing of risk. The China and India angle only emerged as a rationale to buy stocks a year or so ago, but to be honest, as a justification to get investors to buy, it's as good as any.
On the local front, an additional impetus came from two government decisions - first to issue two casino licenses and second, to open Singapore's doors to two million more foreigners so as to reach a target population of 6.5 million.
Both were well-timed and had the substantial impact of jacking up the property market, the one asset class that every individual holds close to their hearts. Not surprisingly, property stocks - together with the banks - then provided the foundation for the ST Index's numerous records over the past two years.
Moreover, judging by the latest strategy reports, there's still plenty of upside - 12-month targets for the ST Index from various houses fall within the 4,000-4,200 range.
There is however, a growing realisation that the party cannot go on forever and that if markets are at all-time highs for a prolonged period, risks must logically increase at some point. The most obvious problem area which has emerged to derail the 'this time it's different' impetus to buy is the US sub-prime mortgage crisis which markets have until now, clearly underestimated and which has severely destabilised Wall Street in recent weeks.
On Tuesday this week, the US Federal Reserve left its short-term interest rates unchanged at 5.25 per cent, emphasising that there are downside risks to growth and that it remains on careful inflation watch.
Notwithstanding yesterday's stock market rebound, it's worth noting that the Fed's language was actually hawkish and it did not give any clues as to whether it would tinker with interest rates in the near future.
It's also worth noting that the sub-prime saga has probably not fully played out yet and that volatility will be a key feature from here onwards until greater clarity emerges. Nowhere is this more evident than in the case of the local banks, whose shares have crashed and rebounded sharply in the wake of sub-prime concerns.
Markets are actually hoping for US rate cuts later this year, possibly in October, so as to ease the pressure on credit and stocks. It'll be interesting to see if the Fed actually does this since oil last week touched an all-time high of US$78 per barrel while the US dollar continued its prolonged slump.
Another source of potential problems is China, where the economy is in serious danger of overheating and where investors must surely be getting nervous as to whether the government will drastically tighten the screws to keep prices in check.
So the bottom line has to be that yes, the outlook for the stock market is good but you'd have to wonder if most of the good news is already in prices and whether sooner rather than later, the risks that have simmered below the surface for some time now will erupt in full force.
