We view it as our job to keep tabs on investment opportunities and risks. As the stock market rally has extended itself well beyond what many expected, there are been numerous points of concern. But, (like Mark Twain’s mistakenly reported death) reports of an eminent stock market crash have been greatly exaggerated! There is good news from investors and it arrives on many fronts.
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Why Stocks Won’t Stop Rallying
Forbes looks at why stocks won’t stop rallying.
Economic data in the U.S., China and Eurozone are beating expectations by the biggest gap since early 2018 and on the longest win-streak since mid-2017, according to the sum of Citi’s economic surprise indices I compiled using Bloomberg.
Geopolitical risk between the U.S. and China is fading, Brexit is on some path toward completion, a dropping dollar is providing relief to emerging economies, and the global banking system is still intact despite an unnerving foray into the land of negative interest rates.
So stocks are rallying as things improve. It’s as simple as that.
None of this is to say that the world of investing is perfect. There are still valid concerns about the permanency of the trade war, the possibility of a global debt crisis, and trouble in hotspots like Iran. But, as Forbes notes, the situation with Iran is not getting any worse, the trade war has reduced to a slow simmer, and the major economies in the USA, Europe, and China are all doing a bit better than expected. The Brexit mess may even get cleared up!
What Investments Will Prosper as the Market Rally Continues?
Investors seem to be flocking back to Tesla and Apple. The question, of course, is how fast can these companies grow their income to support ever-higher stock prices. Then, the question is which investments will endure over the longer term. The Treasury long is still low-priced is bond investors are skeptical about the sustainability of the world economy in light of climate change issues, skyrocketing debt, and multiple societal pressures. This brings us back to investing in the USA, looking at investments that having nothing to do with China, and investments where you will not lose any money.
How Long Will the Good Investment News Last?
The obvious answer is that the good news lasts as long as it lasts. Current optimism about stocks is partly a result of recent pessimism. The constant drumbeat of doom and gloom predictions by bears dampens market sentiment until another round of strong earnings, or earnings that beat expectations, comes in. This is a bit like the boy who cried “wolf” so often that no one paid attention the time that a wolf really showed up! Which brings us back to how an individual investor should deal with good and bad news. Do you fundamental analysis and use intrinsic stock value as a guide when investing in stocks.
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