Wednesday, July 31, 2013

Stocks Peaked? ... Not Hardly

The U.S. economy is weak. The rest of the world's economies are weak, too.

That said, the U.S. and most other economies have bottomed, and with the prominent exception of China, things are improving, albeit at a very slow pace. That will be evident as our own GDP report to be issued later this morning for second quarter economic growth is likely to be ~1% or perhaps even less.

Yet our problems are essentially self-inflicted, so we can solve them when we summon the will to tackle them in a straightforward manner. We'll do just that, as We the People always do, but only after we first are able to convince our feckless political "leadership" that it's the politically correct and right thing to do. That could take some time, but it will be done. It's the American way.

Meanwhile, in anticipation of better days to come and due to Federal Reserve induced low interest rates making fixed income investments an unwise choice for investors, stocks have been on a tear the past few years. This year has been especially strong.

Does that mean those who didn't get in on the market's strong move the past few years, or haven't switched from bonds or cash into stocks as of yet, have missed the opportunity for further substantial appreciation in stock prices? Not hardly.

In fact, based on history, we've a long way to go until another secular market top arrives. At least that's my assessment of the current situation.

Streak of stock highs isn't as scary as you think has the historical summary and the reason for optimism about the future for long term investors:

"With every new stock-index high comes this old fear: You’ll be proved a sucker if you decide to buy stocks now.

The feeling is understandable, but a look at past performance suggests the fact the market is on a record run shouldn’t be a major factor in deciding whether to move into stocks at these levels, strategists said.

Sam Stovall, chief equity strategist at S&P Capital IQ, criticized financial media for making it sound as if the S&P’s successive streak of record closes alone indicate the bull market is likely to end in the very near future.

“I don’t know why they say that, other than to instill fear and thereby ensure that investors stay tuned. History, on the other hand, shows that new highs are typical in a maturing bull market,” Stovall said in a note.

He notes: “How else would the S&P 500 trade at 1,692 (as of 7/19/13) versus 13.55 at the start of the bull market in June 1949, unless it frequently traded in uncharted, new-high territory?”. . .

“So history would indicate, but not guarantee, that this bull market has many more new-highs to record before finally running out of steam,” he wrote."

Summing Up

Short term, who knows what the price level of stocks will be?  Not I, that's for sure.

Long term, however, everybody knows or at least should know. Higher. Much higher.

From 13 in 1949 to nearly 1700 today is an astronomical move.

There's reason for optimism about the future direction and level of stock prices. I plan to keep riding the waves, both up and down, but mostly up.

That's my take.

Thanks. Bob.

No comments:

Post a Comment