The Stock Market Rally Lives On. But Can It Continue?
J. Dennis Jean-Jacques
Author
Five Keys to Value Investing
NO.
“The market rally cannot continue at the current pace over the next year. Increased government involvement in the general market makes this a very delicate time period, thereby making a continued stock market rally more unlikely. Needless to say, it is hard to ascertain whether the level of froth in the market is born from sustained economic growth or artificial stimuli. Indeed, the government has always played a role in the markets such as changing tax policies or lowering interest rates at the first sign of unwelcome economic news. Such interventions often “prop up†equity markets until sustained economic growth is restored. It can be tricky for investors to navigate as the economy becomes less dependent on artificial injections because this period produces very difficult, and often volatile, stock market environments. The time at which such transformation begins and how long the purgatory will last are the unknowns; but after TARP, tax relief, mortgage relief, QE1, and QE2, a transition must happen at this stage of the government’s prolonged intervention–which will most likely have a negative impact on the market. This is why investors should be extremely cautious during this time as this market rally is expected to take a much needed pause.â€
