For the month of January, U.S. stocks experienced the best month in more than two decades [and the Dow hit 14,009 on Feb. 1st for the first time since 2007]. Per the Stock Traders’ Almanac market indicator, the “January Barometer,” the performance of the S&P 500 Index in the first month of the year dictates where stock prices will head for the year. Let’s hope so…. [This article identifies 5 more solid reasons why equities should do well in 2013.] Words: 453
So writes Frank Holmes (www.usfunds.com) in edited excerpts from his original article* entitled Dow To 14,000… and Beyond?.
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Holmes goes on to outline the 5 reason, as follows:
1. Sentiment at a High
Sentiment among individuals, advisors and traders has experienced a sudden spike recently…53% of those surveyed expect equities to be the best-performing asset class over the next year. This represents a “17-point jump over the previous poll in November, and the highest reading in the four-year history of the survey,” says BCA.
Indices Not at Extreme Levels
…It’s common to question if the market has climbed so high that it might correct and revert to a long-term mean. Take a look at the oscillator [below] to see today’s incredible shift in context with its historical moves. Using 10 years of data, the S&P 500 Index has moved one standard deviation from its mean over the past 60 trading days. The MSCI Emerging Markets Index is only about a half of a standard deviation from its mean over the same time frame. These charts indicate that the indices are not at extreme levels, like the low we experienced in 2009 or the high a few months later. Rather, the stocks are moving within their normal band of volatility.
…BCA believes, “equities should outperform Treasurys over a cyclical horizon of two-to-three years.” The research firm points to the relatively strong earnings season in the U.S. and the Federal Reserve’s ongoing monetary stimulus, “which should provide a tailwind for stocks.”
3. U.S. businesses and households are deleveraging
After hitting a peak, you can see in each of the charts below that there has been progress in bringing down the levels of debt across businesses as well as individual households. Less debt gives consumers and companies more confidence to invest, spend and hire.
4. New Home Sales Should Increase
Home builders have become increasingly optimistic, as measured by the NAHB Homebuilder Sentiment Index, which has climbed significantly higher in recent months. Historically, new home sales have eventually followed, which is positive for employment, commodity demand, collateral stimulation, cars and appliances.
5. Inflation Remains Low
As you can see in the chart, inflation remains low in Japan, Europe, the U.S. and the U.K., with core consumer price inflation falling below 1.5 percent, according to BCA Research. Even though many developed nations are printing money and are experiencing the “most extreme monetary stimulus in modern times,” inflation is stable.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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