6 reasons stocks are still setting records
Despite a shaky economic recovery, the markets are seeing a boost from low interest rates and a shrinking deficit.
Stocks continued to grind out record high after record high in the second quarter.
Low interest rates, low inflation and steady growth are often cited by market bulls as the fundamental tailwind for the market even as they acknowledge that valuations are getting a bit stretched.
In a note, David Kotok of Cumberland Advisors says it might be time to up cash holdings in the face of geopolitical risk, but offers a concise list of reasons why stocks continued to rally in the second quarter and still look attractive compared to other asset classes:
1. The short-term interest rate remains close to zero.
2. Long-term government bond rates fell when they were expected to rise worldwide.
3. Reports of worldwide inflation continued at very low levels in most jurisdictions. In Europe, the inflation rate is now recorded at 0.50 percent.
4. Central bank policies continue to be expansive. Even though the Federal Reserve is tapering, it is still expanding excess reserves and acquiring assets onto its balance sheet.
5. The federal deficit continues to shrink. It has gone from a run rate of $1.4 trillion at its peak to an annualized run rate of $400 billion, and the number is falling.
6. The growing U.S. energy self-sufficiency is evolving and is resulting in shrinking trade and current-account deficits. We do not import as much oil and energy as we used to. We produce much more. The trends continue in that direction. That means that dollars do not flow abroad; therefore, those dollars do not have to be attracted back to the U.S. by higher interest rates or other investment returns.
Those factors continue to support equity prices, Kotok writes, and on a comparative and relative basis, stocks "still seem attractive." He expects slow growth and low inflation to continue to support U.S. earnings growth.
That said, he notes that while Cumberland was fully invested for most of the quarter, geopolitical risk is on the rise. "To be more prudent, we have raised some cash reserve during the second half of June," he said.
More from MarketWatch
Inflation is Rampant and anyone living in the Real World knows this all too well. Concerning the near term levels of Deficits, that's about to change again an in a Huge way. Stocks continue to rise simply because Corporations are borrowing at Record Levels to engage in Record Levels of Corporate Buybacks. Global Debt has soared 40% since the Great Recession. The Current State of Things is simply unsustainable. The Longer it takes for Reality to take hold, the Harder and Deeper the Fall.
Q-E isn't dead yet but will be and should never have been done. The GDP shrank in the first Q 3% and once again we're being told not to worry better times are "just around the corner". If you're beginning to feel a little bit like we're chasing our tails, well in fact that's just what we're doing. The economy hasn't emerged from recession at all and isn't going to as long as anti-growth policies are in place.
We cannot have a thriving and robust economy while we have millions of able bodied people sidelined and not working. Even Janet Yellen herself has stressed the need to get more people back into the workforce. Why the MSN staff writers wish to ignore this horrible fact is beyond me.
Utter Nonsense. Since the end of the "sequester" the beficit is growing by leaps and bounds. Source: Barrons, 6/23/14, page M50. The deficit in May was 1.453 Trillion, last year 1.056 Trillion. You will not hear the Liberals and Democrats mentioning the deficit is going down, because FACTS indicate the exact opposite. We are target to exceed 18 trillion in debt before the year is out. This in spite of the massive Obama tax increases. Federal spending has also increased above what the tax increases brought in.
What we need is a balanced budget all right. But that means we have to get the 47% parasitic class that pays no taxes to contribute their FAIR and EQUAL share. Instead we get more massive spending, and ZERO cuts. We need to slash the Federal budget by one third. We have a lazy, LYING, arrogant, CORRUPT Imbecile running the country in '57 states' Obama.
No one talks about basic economics and the law of supply and demand. Retirement plans of all types +IRAs +Roth IRAs represent a constant flow of money into the market and represent a platform for demand ON THE BUY SIDE. I don't know how big a factor it is, but it seems to always be discounted by 'The Talking Heads/The Experts' and they have not gotten it right - the market, the economy, GNP forecasts, employment or the lack thereof, and the overall quality/pay of new jobs. The optimism of the experts is a bit overwhelming especially since they are so far removed from the men and women trying to make a difference.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.