With the U.S. just celebrating their 6 year anniversary of the current bull (positive) market run, many investors are wondering can the rally in the equity (stock) markets continue? I have heard many investors and analysts say that the equity markets both here and in the U.S. have risen too far too fast, that valuations are now running too high and that this market will have to fall at some point in the near future!

Although I do agree that valuations are starting to get a little stretched in some sectors of the stock market, I don’t believe the party is over for the equity markets here in North America just yet. I think the North American stocks markets still have room to run for three main reasons.

Interest Rates Remain Low

First and most importantly, interest rates remain low.  In many countries around the world including Canada, interest rates have gone lower in the last 6 to 12 months. In the U.S., the Federal Reserve has decided not to raise interest rates as yet thus leaving rates at historically low levels. When interest rates are low, it allows the consumer to borrow more which stimulate the economy. It also eliminates the option of investing outside the stock market if investors are wanting to grow their portfolio.

If an investor is considering other asset classes such as fixed income (ex. bonds), they will find it quite difficult to grow their wealth as the rate of interest received is just too low. This is a win win for the stock market. During periods of low interest rates, we usually see the equity markets move higher.

Inflation Not A Factor

Second, inflation is not a factor. Many economists have been more worried about deflation over the past 12 months than inflation with the risk of deflation washing up on our shores here in North America from Europe. With oil prices falling by over half their value since last summer, higher energy costs should not be a factor causing inflation. Thus interest rates can remain lower for longer.

Governments Remain Accommodating

Lastly, governments around the world remain accommodating. We have seen central banks from Japan, China, Canada, India and Europe do whatever they believe is necessary to stimulate their country’s or region’s economy.

Many of them have lowered rates while the European Central Bank has gone even one step further by introducing quantitative easing into their economy. The process called quantitative easing was used by the Americans in 2009. The central bank in Europe plans to pump approximately sixty billion dollars into the European economy by buying back bonds each month until September 2016.

Many economists believe that there is a currency war going on right now as all these actions of quantitative easing and lowering of interest rates causes a country’s currency to fall in value which can allow them to export their way back to prosperity easier.

No Better Environment

So with all the free flowing money around the world, lower interest rates and governments doing whatever they need to, to help their country’s grow, how can investors not be investing in the equity market at this time? I believe there is no better environment nor is there another option to grow your wealth than to be invested in some way in the stock market.

If you’d like me to take a look at your portfolio to see how I can help you capture the best of this bull market, please give me a call at 416-332-3863 or email me at allan@allansmall.com

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