Today I want to outline my viewpoint on why I think the American Stock Market will continue to move upward:
ISIS, Ukraine, Ebola has created a positive demand for US stocks and bonds. Investors in Europe and Asia are interested in US bonds and stocks because of geopolitical turmoil. Investors view American stocks and bonds as a flight to a safe haven. Also with possible deflation in Europe that is a key reason why US assets are more attractive.
Bullish Reason to Remain in the Stock Market:
-the US stocks look healthier than the rest of the world. After a negative first quarter in GDP the economy in America bounced back.
-Earnings growth has been decent.
-job market is improving. We will see a full scale recovery when jobs begin hitting 300k plus per month. At that point the Feds will definitely move interest rates higher.
-stronger consumer: due to lower oil prices: Oil prices fell to the lowest level in 15 months pressured by the prospect of slowing oil demand growth in China and Europe, while a strong dollar and ample supplies pressured US oil prices. China’s factory setor growth slowed to a three month low last month.
-bonds are a surprise as investors keep buying bonds and the 10 year Treasury is hovering at around 2.34%. This has dropped from 3% where it sat at the beginning of 2014. Many on Wall Street are forecasting no rate hikes until mid next year and then only gently which would be very bullish for the stock market.
It appears that when the Feds stop buying US treasuries that Europe, Japan and China will continue the buying of US bonds which at least for the balance of 2014 and into 2015 will keep US interest rates low.
At this point I see this market moving up on momentum and not on fundamentals. I believe bond rates will go much higher causing interest rates to rise and then we will see the asset bubbles in the stock market and real estate market explode but it appears at least in the short term this has been delayed mainly due to geopolitical termoil and a flight to the safety of the US market.
The factors that will cause interest rates to go up faster would be strengthening in jobs or a higher move in inflation. If inflation moves up fast enough it will cause a major sell off in stocks.
The above is the case for a “Bullish” Outlook on the stock market and US economy.