I am always skeptical when market strategists state things are different this time around. In the run up to the technology bubble in early 2000, many market strategists tried to justify higher P/Es due to the growth of the internet. Until 18-months ago, the rapid inflation in real estate prices was partly supported by strategists citing the growth of the baby boomers and their desire to purchase second homes.
In a recent market commentary, New Paradigm Ahead?, by Liz Ann Sounders, Schwab's (SCHW) Chief Investment Strategist, Liz Ann makes a case for higher U.S. equity prices. She details sixteen events that may occur that may lead up to a better U.S. equity market:
In a recent market commentary, New Paradigm Ahead?, by Liz Ann Sounders, Schwab's (SCHW) Chief Investment Strategist, Liz Ann makes a case for higher U.S. equity prices. She details sixteen events that may occur that may lead up to a better U.S. equity market:
- U.S. economy slows dramatically (check)
- U.S. Fed cuts interest rates dramatically (check)
- Dollar sinks further (check)
- Commodity prices go parabolic (check)
- Speculative hoarding of commodities ensues (check)
- Regulators and Congress rev up the anti-speculation rhetoric (check)
- Commodity-hungry emerging economies suffer (check)
- Global growth suffers, including noticeably in China (check)
- Investors shift funds from international stocks to commodities (check)
- Non-U.S. central banks consider rate cuts to fight growth slowdown (pending?)
- U.S. Fed enters pause mode (could be there already)
- Rate differentials support dollar rally (fledgling rally so far)
- Commodity prices begin to correct (fledgling correction so far)
- Commodities move from U.S. economic headwind to tailwind (pending?)
- Lower commodities/inflation supports U.S. valuation expansion (pending?)
- Investors shift from international stocks/commodities to U.S. stocks (pending?)
In the above list, Liz Ann has "checked" the events that have occurred to date.
I am always skeptical of the "it is different this time" belief; however, could the above events lead to higher equity prices?
I am always skeptical of the "it is different this time" belief; however, could the above events lead to higher equity prices?
Source:
New Paradigm Ahead?
Charles Schwab & Company
By Liz Ann Sounders, Chief Investment Strategist
May 16, 2008
http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/recent_commentary/new_paradigm_ahead.html?cmsid=P-2603064&lvl1=research_strategies&lvl2=market_insight&refid=P-2413636&refpid=P-994224
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