If you ask a market forecaster how confident they feel about predicting the future of this current stock market rally, I suspect you’d get a rather sheepish answer.
It seems a growing number of investors may feel this is one of the most unpredictable markets in memory. Not to imply that stock markets are ever predictable, but there are times when trends are more certain and, as they say, the trend really is your friend. In this post, I’d like to discuss why some consider this to be one of the most hated rallies in recent memory. It’s hated in part because so many investors have been waiting on the sidelines for that inevitable pullback that has yet to materialize. It’s hated in part because the economy is still pretty fragile. However, on that note, it has also been said that we don’t invest in the economy, we invest in stocks. History bears witness to this as there have been many periods when stocks performed well amid a weak economy. True enough, but can the stock market continue to climb and shrug off bad news?
We are creatures that require reasons for why things occur. What reasons can there be for the continued run up in stocks? After all, Europe is in recession, China is slowing and here at home, the employment picture is not exactly rosy. That said, stocks continue their ascent. What’s the catalyst? Many point to the Fed. Now I know this isn’t ground-breaking news. However, as the central bankers of the developed world engage in a massive monetary expansion, stocks appear to be one beneficiary of the liquidity surplus. What keeps me up at night is this: How long can this continue and how might it end? Actually, it’s the latter which concerns me most.