6 reasons why stocks are still setting records and
Post# of 102845
Posted On: 06/27/2014 7:34:24 AM
6 reasons why stocks are still setting records and 1 reason to trim longs
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%.
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.
http://blogs.marketwatch.com/thetell/2014/06/...rim-longs/
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%.
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.
http://blogs.marketwatch.com/thetell/2014/06/...rim-longs/
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