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As we all know, money printing always leads to inflation. It’s just a
matter of figuring out which assets get inflated. This time around gold is not the only beneficiary, stocks are, too, and I’m convinced that the chart below holds the key to the end of the bull market. Words: 475; Charts: 1
So writes Lou Basenese (www.wallstreetdaily.com) in edited excerpts from his original article* entitled This Chart Holds the Key to the End of the Bull Market.
This article is presented compliments of www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
As you can see [in the chart below], the current bull market officially began right after the Fed ramped up its purchases of government debt and mortgage-backed securities.
It might be true that the Fed was simply the match that lit the fuse had it actually stopped buying bonds -but it didn’t – it just kept buying more and more bonds over time and, sure enough, stock prices marched higher in near perfect unison with the additional quantitative easing (QE). [As such,] considering that Ben Bernanke is still cranking out the Benjamins nonstop – to the tune of $85 billion per month – we shouldn’t expect the bull market to end anytime soon!
I never rely on a single indicator to guide my investment decisions so, for good measure, here are three more reasons to be bullish on stocks in 2013.
We Can Still Buy Low
Despite more than three years of advancing prices, stocks remain a relative bargain. Case in point: At the end of January, the price-to-earnings (P/E) ratio for the S&P 500 Index stood at just 14.9. That works out to about a 25% discount to the historical average since 1980.
Sentiment is (Finally) Improving
After years of doubting the rally – and missing out on the gains – individual investors are finally feeling optimistic about stocks. Two weeks ago, the weekly survey from the American Association of Individual Investors revealed that bullish sentiment topped 50% for the first time in a year.
We’re nowhere close to the danger zone of too much bullishness, though. Since the current bull market began, bullish sentiment has topped 50% on 14 other occasions…and each time stocks rose over the next three months by an average of 5.3%.
Investors are Plowing Money Into Equities
Investors aren’t just feeling more upbeat about stocks, they’re behaving like it, too. Since January 1, they’ve plowed $39 billion into equity funds, according to fund flow tracker, EPFR Global.
Again, the sudden shift shouldn’t cause any concerns. Since 2008, investors have withdrawn about $365 billion from stock funds in the United States, based on calculations by Nicholas Colas, Chief Market Strategist at ConvergEx Group. That means there’s conservatively about $325 billion in capital still waiting to be reallocated into stocks – more than enough “dry powder” to push prices considerably higher from here.
Bottom line:
The current bull market isn’t in jeopardy of coming to an end until the Fed finally stops buying up bonds – and there’s no indication that day is coming anytime soon – so don’t fight the Fed. Instead, keep taking advantage of the relative bargains and investors’ changing attitudes toward stocks. Just remember to protect your downside by using trailing stops.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.wallstreetdaily.com/2013/02/06/end-of-the-bull-market/ (Written by Lou Basenese; © 2013 Wall Street Daily, LLC. All rights reserved; To subscribe to Wall Street Daily go here.)
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