A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
Fed Keeps Markets Rockin'
06/13/2013 6:30 am EST
As long as the Fed is producing easy money, the markets are the best place to stash your cash, write Mary Anne and Pamela Aden of The Aden Forecast.
The stock market is super strong, hitting new all-time record highs. Its bullish momentum keeps gaining strength. The Dow Industrials have surged above 15,000 and the market is likely headed much higher.
We all know the Fed's easy money policies have fueled the boom in stocks. So much money has been created, it had to go somewhere-and so far it's going into the stock market.
Many investors are doubtful. They're convinced the rise in stocks is just a Fed-fueled bubble. But it really doesn't matter...whether it's the Fed's bubble policies or not, the point is stocks are bullish, and you want to be in the market.
For now, stocks are the best game in town. They're much stronger than bonds, the metals, commodities, and currencies.
Think about it...investors have nowhere to go. With interest rates near record lows and paying next to nothing, a savings account or CD simply doesn't make sense. And while that's not good for savers, it's very good for the stock market, making it more attractive.
Currently, the economy is improving, but it remains sluggish. That pretty much guarantees the Fed will keep interest rates low and the money flowing.
This is a great combo, especially combined with record corporate profits and reasonable valuations. Plus, the stock market looks ahead, so its rise is also a positive sign for an improving economy.
Baby boomers heading into retirement age are not getting any income from their savings or cash retirement accounts. That means they have to increase their risk factor somewhat by going more heavily into stocks to make up for near-zero interest rates.
For starters, investors have primarily been buying into the bigger, high-quality dividend-paying stocks. These are the blue-chip stocks that are considered the safest for long-term growth and income via consistent dividends.
But now investors are kicking it up a notch. Tech stocks are picking up steam, and so are some of the global stock markets. Here too, low interest rates and strong earnings are fueling the rises. Tech stocks, for example, are still very cheap. And the same is true of many of the world stock markets.
Plus, don't forget, there's still a mountain of cash sitting on the sidelines, and most money managers are bullish. This alone could drive stocks to sharply higher levels.
There's an old saying in the stock market and it's so true: "Don't fight the Fed." Well, we're not. We're staying with the Fed, and we hope you are too.
The bottom line is this...as long as the Fed keeps buying bonds, providing easy money, and maintaining interest rates at super low levels, stocks are going to rise further.
We believe stocks are headed higher. For new buyers, it would be ideal to buy on a downward correction. But the ideal moment may not come. So we'd go ahead and buy at least some now, and then buy more when stocks do correct further. In other words, average in.
Currently, we'd buy new positions in PowerShares Nasdaq (QQQ), Dow Diamond (DIA), iShares S&P Global 100 (IOO), and DJ Telecom (IYZ), as well as our newest recommendations, the iShares DJ Transportation (IYT) and Consumer Discretionary SPDR (XLY).
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