The US stock market since 2009 has rallied for more than 5 ½
years. The benchmark S&P 500 index has moved up from 666.79 to 9/17/14 ‘s
2001.57. This translates to 1334.78 points and 200% gains and there has not
been any correction more than 10% during this period. People are wondering is the big correction coming and where is
the market going from this point onward? There are a lot of things need to be
sort out first in order to answer this simple but complex question.
There is lot of events happening in the world that causes
concerns. The world is complicate geo-politically. There are continue chaos in
the Middle East among countries such as Iraq, Syria, Israel, Palestine and the
emerging of the ISIS terrorist group which threatens the safety of the
world. And then there’s the Ukraine
civil war which has caused the new cold war between Russia and its western
rivals---the US and the European countries. Some has even suggested the third
world war is brewing because of this.
Any mishandling of these situations can cause havoc to the economic of
the world and the stock market. At the present, the economic sanctions applied
against Russia by the Western countries not only is harming Russia but has
negatively impacting the economic recovery of the European countries. As if
this is not enough the independent referendum in Scotland to be held tomorrow
if successful will hurt England economically. Japan is weak economically, China
is sensing slow down and the fragile US economic growth can easily be wipe out
by the weakness of the rest of the world. At the same time, let us not forget
the quickly spreading of the Ebola disease in Africa. It will threaten a lot of
lives in the world if the situation is not contained. So the above are concerns
on the back of investors mind.
With so many negatives, what is driving the stock market up?
The answer is very simple, low interest rate and quantitative easing. These
feats are not only used by the US Federal reserve but are also adopted by the
central banks around the world. These central banks include European, Japan and
China, the most influential economies of the world. As the central banks are printing money and keep interest low, it
encouraged corporation and individuals to borrow. Corporation use the borrowed
money to fund projects and buy back their own stocks. Investors borrow money to
invest in the stock market and real estates. Since interest rate is at record
low, there is no other investment with returns that beat the stock market
return. This is why money keeps piling
into the stock market and the stock market continues to rally. There is a
well-known saying on Wall Street which is: Don’t fight the Fed.
