The US stock market is (still) on a roll. At this writing, it has tacked on another 18% in the past 12 months, to deliver 134% since its March 2009 turnaround point. Despite record high index numbers, the market’s current riskiness level hasn’t reached the point where sandbags are needed to spare us from disastrous flooding. Valuations of stocks do not yet force us to look at them with sunglasses. In addition, there is a comforting presence of market wariness about its own level of risk. As further support, the Fed is still putting out assurances to banks and market risk-takers that it will continue to brew and distribute its elixir of no-cost money, even though the Fed’s zero interest rate policy has already thoroughly bailed the biggest banks and essentially mopped up the entire marketplace of home mortgage securities.
As this column has reminded readers from time to time, the current price of any investment is the present value of its expected future return; that present value is primarily driven by the current market rate of interest on the benchmark 10-year US Treasury bond. Despite a significant increase in the 10-year T-bond’s interest (discount) rate from a year ago, the stock market’s recent 12 month return has been double-digit. Strange? Yes. The main reason is demand. After nearly six years of punishment dealt them by the Fed, savers hoping to earn a 3-to-5% return have folded their tents and walked away from traditional interest-bearing deposits. Instead, they have bought stocks, especially those with healthy dividends. The reasoning goes something like this: While they believe that continuation of recent double-digit returns from stocks is unlikely, many conservative savers think they can still “safely” expect to net at least 5-to-6% from a diversified stock portfolio.
There are a bundle of factors causing a “buying panic” in the stock market….
Opportunistic investors have re-focused on emerging markets in 2014….
The Russian problem: A World War model?…
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