High Flying Markets - Recession Cure or Correction Lure?
With continued support from the Federal Reserve, stocks have been lifted to extraordinary, new heights. Last week, the Dow surpassed 16,000 for the first time in its 117 year history. Since October 3rd, the DJIA has surged more than 1076 points.
So, is the economic recovery in full swing? Not exactly … this recovery has been long, slow and, in fact, the weakest in the entire post WW II era. Earnings are not remarkable. Unemployment remains fairly high. Housing is still below pre-Recession levels. Poverty is rising and income is down.
So why are the markets climbing like never before in history? Some say worries about a Federal taper have subsided. Others claim that hordes of individual investors are returning to stocks. When small investors flood the exchange, few expect the momentum to continue. Still others point to surging tech shares including big data, cloud computing, cyber-security, and social media which have fueled market excitement, buzz and speculation.
And then there is the 800 pound gorilla in the money printing room. No one can discount the impact of the Fed’s stimulus practices. With five years of Federal easing, the market has not seen a measurable slump in over two years. So will stocks continue to gain or has the Fed pushed too many into the markets and overly inflated prices?
There’s no doubt that the Fed will withdraw its support at some point, and this will most likely stop Wall Street’s vigorous advance. Will the Fed’s taper trigger a 10% correction? A 20% correction? A greater correction? The mere mention of the word “taper” causes spontaneous volatility and instability.
There’s more concern for the markets as well. Let’s not forget that the extension of the debt ceiling was only a temporary fix. In January we may very well repeat the process of congressional negotiation, deliberation, and debate which always makes the stock exchange nervous. Add to this dialogue concerns about rising interest rates and the unknown economic fallout of Obamacare, and the markets look less and less attractive in the coming months and into the New Year.
So where should investors go? What’s a bargain? What is likely to rise relative to the market’s fall? Gold has a history of resiliency and solid appreciation in the face of reverse market movement and an overall return of bearishness. Emerging economies simply cannot get enough of it and it has been the global antidote to weak currencies, rising inflation, and struggling economies for generations. Gold is the world’s universal performer with a solid track record of preserving wealth in times of marked uncertainty, change … and yes market correction.