I've been looking at economic and stock market correlations between this year and that of 2010-2011. I've compared the stability of our banking system, interest rates,employment, housing, overall economic growth, and geopolitical concerns during those two time periods. What was my conclusion? Well of course after looking over all these issues, I certainly know and feel confident that our economy and corporate America in general are in far better shape than what we were over the past year and a half. After looking over where we were and where we are now, I'm looking to put more money to work in the market by buying stocks and mutual funds because I believe we will continue to see the markets grind higher over the course of the year (for several reasons).
First though, a quick recap of what the economy and investors have dealt with over the not to distant past, which has led to over 460 billion dollars that investors have pulled out of the markets since 2007 (which is one of the reasons the markets have performed so poorly over the past 5 years - most people have been selling stocks!).
- since 1998, if an investor owned an average mutual fund, they have seen no increase in 13 years
- the markets have seen two massive selloffs of greater than 40% since 2000 (there have only been 5 since 1900
- the "flash crash" occurred a couple of years ago when stocks fell by over 5% in one day
- high unemployment
- a 35% nationwide drop in housing prices
- tax, economic and political uncertainty
- political gridlock in Washington
- wild volatility in the markets where stocks can swing up and down by 2% daily
- the widening gap between the upper and middle/lower classes (this has served to damped consumer/investor confidence and is evident in the recent protests around the world)
- the financial/banking crisis that the U.S., (and now Europe) dealt with
- a housing/land bubble in China (similar to what happened in the U.S.)
Enough of the negative, rear view issues we've lived with, now I'm going to list the reasons why I'm so positive on the prospects for stocks.
- bonds have performed extremely well over the past 5 years as investors have shied away from stocks, but as I've mentioned here, I expect there to be a large reallocation out of bonds and into stocks (I expect this transition to be massive)
- the economy has improved handsomely, and while we are still experiencing sub-par growth, we are seeing growth nonetheless
- employment is markedly better than last year..while still too high, the rate has come down over the past year
- the U.S. banking system is stable and in very good shape
- the housing/land bubble in China seems to be under control
- our housing market is actually seeing small signs of a rebound
- interest rates are low
- while stocks have performed well this year, they are still undervalued by historical price measures
- despite some hot spots of geopolitical concern, the U.S. stock market remains the best and safest place to invest in
As seen above, I view U.S. stocks as being extremely favorable investments and I am consequently buying more stock and mutual funds and selling my bond funds. I'll list some of the best mutual funds out there by size (large/mid/small cap).
Buy stocks and sell bonds
