Now that the Federal Reserve has made their announcement of QE3, what is the next event to take this market to the next level? We have seen the major North American stock markets rally with the expectation of Fed stimulus in both Europe and the United States and the market was not disappointed. So what’s next for investors? Should they take profits at this time with no new additional catalyst in site?
My quick answer is no. With the Federal Reserve in the U.S. about to embark on further easing measures which according to Ben Bernanke the head of the Federal Reserve, will last until the economy gets a lot better, how can investors not be in this market if you are looking to grow your wealth? You couple the Federal Reserves statements out of the U.S. with the most recent stimulative statements out of China and Europe and in my opinion, you have the makings of a fantastic stock market rally!
We have already seen the major U.S. stock markets rally this year tremendously. All three major indices are up double digits year to date even in the face of all the negativity coming out of the United States and around the world. This to me, seems like a runaway train that investors should be getting behind not in front of.
The interesting part of this rally is that many retail investors have not taken part in it. I believe investors for whatever reason have chosen to ignore the markets rally and focus more on the negative headlines coming out in Europe and other places around the world. In speaking with investors, they mention that they believe the worst is yet to come. However the stock market in North America continues to climb that wall of worry each day and especially in the United States continues to rally.
So for all the investors that continuously wait for all the storm clouds to disappear before they invest, I wish you good luck! In my opinion, there will always be storm clouds on the horizon. They will never fully go away. Thus investors cannot afford to wait for something that I feel will never be before they decide to invest. I believe you need to buy low to eventually sell high as the saying goes. However it is painfully obvious that many individuals continue to do the opposite. They buy after the market has its run (buy at higher levels) and then they sell after the market corrects and pulls back from its high point (sell low).
In my opinion, this market remains cheap based on the alternatives investors have to not being in the stock market. Investments in GIC’s, government bonds and high interest savings accounts are paying on average less than 2.5% (approximate level of inflation). Thus if you are playing it safe and are not in the equity markets, there is a very good chance your money is not growing fast enough to keep up with the rising costs (standard of living) around you.