Dr. Brian Jacobsen discusses stocks, bonds, and what’s ahead for the Fed.
It typically is a terrible thing when stocks go down. Whether it is a quick and nasty bull market correction or a protracted and grinding bear market, it has the potential to destroy wealth and damages egos.
Go, and beat your crazy head against the sky
Try, and see beyond the houses and your eyes
It’s okay to shoot the moon.
–Darling Be Home Soon, The Lovin’ Spoonful
Last week, U.S. stocks rose on reports that the new administration might lower corporate tax rates.
The U.S. stock market has been rising for almost eight years now and, at roughly 16 to 17 times forward consensus-earnings expectations, it seems fairly valued to me.
“… simplify, simplify.” —Henry David Thoreau
John Manley, chief equity strategist with Wells Fargo Asset Management, points to the bright spots.
“What, me worry?” —Alfred E. Neuman, Mad Magazine
I think stocks may decline. I think interest rates may rise. I am not alone.
For the past several weeks, my mailbox has been inundated with calls for a correction. These are calls from reputable people who possess common sense and have a history of thoughtful predictions. They are not the letter-writing lunatic fringe who constantly perch on mountaintops or lounge on beaches, waiting for the end of life as we know it. These people and their opinions deserve respect.
Those calling for a correction are right about the direction but not so much the degree. I believe that the U.S. economy is improving and that improved conditions will soon allow Federal Reserve (Fed) Chair Janet Yellen to raise short-term interest rates. Chair Yellen is now alerting us to that possibility/probability. To me, this is an indication that she believes that the economy has improved enough to allow the Fed to raise rates without adversely affecting economic activity.
“I can’t tell you how encouraging a thing like this is.” —Ruth Gordon (on accepting the 1969 Academy Award for best supporting actress at the age of 72, after 50 years in show business)
“Time flies when you’re having fun.”
The current bull market in equities has been going on for some time now, and some think that it’s beginning to show its age. In March 2009, the S&P 500 Index almost touched 666 points. In the summer of 2011, it came close to a 20% correction but, on a closing basis, not quite. Since then, there have been a number of micro-panics but only one 10-percenter and nothing close to a 20% correction. So, depending on how much of a purist you are on these things, we are either five- or six-and-a-half years into what’s been, so far, a pretty spectacular rise in stocks.