Markets have surged over the past year on the back of strong earnings, subdued inflation, and the hope of fiscal and financial reform.
As markets continue to set new all-time highs each week, investor support has yet to wane. In the last several weeks, third quarter earnings have been the latest catalyst to growth. Corporate earnings slowed from earlier in the year, but still growing at a rate of 6% has allowed the surge.
Concerns have persisted, through the last decade, that the excess cash that has been loaded into our financial system (Quantitative Easing, QE) would lead to inflation. QE is a process by which the Federal Reserve purchases bonds and puts cash into the banking system. Now, 9 years later, the Federal Reserve is actually taking that money out of the market, removing much of the cause for concern around that type of inflation.
The last 12 months have brought the hope of financial reform through potential revisions to Dodd/Frank as well reform to the tax code. This would bring high levels of relief to corporate entities. As the year draws to a close, proposals on tax reform are making headway, but nothing firm has occurred. As we inch slowly to action, markets leap at each positive move.
It would appear the smart money is indicating that the opportunity of the next several years is there for the picking. In fact, the majority of investor newsletters (much like this one) are bullish in their sentiment. Perhaps that is just enough reason not to be bullish…
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