I have been asked over the past several months how far up the stock market will run before it has some sort of pull back. While these types of questions always create some level of conjecture, a smart money move to remember is that money will always chase something and never really sits still.
Think about your daily lives. There was a time in your life (perhaps now) where you started to make some money. The money you were making easily exceeded your bills allowing you to start building up cash in your bank account. As your bank account climbed, so did your excitement around having this new found set of cash sitting at your disposal. Your emotions ran high with excitement on how you were going to spend that hard earned money. Should you buy that car you always wanted to drive? Should you take that vacation to a faraway place that you dreamed of many years ago? Had you been looking at those new shoes you just couldn’t afford at the time? Was there a concert or sporting event that you wanted to sit in the front row? Or, was it time to step up and completely redo that kitchen of yours complete with the granite countertops and Sub Zero refrigerator?
The longer the money sat in the account, the more it began to burn a hole in your pocket. Eventually, the pocket had a hole in it, and your spending spree began like a free for all on Black Friday during Christmas season. Before you knew it, you had a bunch of toys and trips lined up and your cash was depleted back to its normal level. Money couldn’t sit still, and it had to chase something.
The stock market today somewhat looks like that scenario. Bank accounts are paying near all time lows, with most of you getting less than 1% per year interest on your accounts. The bond market has 10 year and 30 year rates near an all time low making it very difficult to make money in bonds especially for those looking for current interest on their accounts to meet retirement income. Most of the public is still shaky on real estate, especially when it comes to the idea of generating interest from rental payments on residential or commercial real estate. While precious and rare metals have been popular like Gold, people have a hard time grasping the concept of paying Gold nuggets to a cashier at Target for their goods.
Well, where does this leave us? It puts us in that age old scenario of supply and demand, and the notion that money must chase something. Given the current environment, you are seeing money chase the stock market which in my mind has led to the recent run up we have seen over the past six months after the market had its recovery. The main item to pay attention to is to see if money will have something else to chase. Will there be a change in interest rates (short and long term)? Will real estate stabilize in the eyes of the public? Changes like these that get investors excited about where to put their money besides the stock market is what will slow down this recent run.
Remember the story I told you about today. Money never sits still and it begins to burn a hole in the pocket of investors. At less than 1% in the banks today, that burn happens a lot quicker than normal and the stock market has people excited today about an alternative to do better than just staying put at the bank. Who knows exactly how long this run will continue. Supply and demand says as long as the price is right, people will still buy tickets to the stock market game. Add A Comment
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
Phone 1.800.355.9318 or 770.777.0427