Paul, the economy is not "overheating" by any stretch of the imagination... what you state may happen but I doubt the Fed would act merely because the stock market is strong - since the strength of the market does not necessarily parallel the strength of the economy. On the contrary, the market seems to be reacting to a slower and steady economic state.
Consider also - wherever you turn, everyone is being advised to invest in stocks for a secure future, wealth in retirement. "Stay 100% in stocks" if you are young and can weather the downs, put your IRA and 401K money in stocks, and don't pay any attention to ups and downs, stay in for the long pull. If this is the prevalent thinking, then billions will continue to pour into the market every week. This will be a powerful counter to the possibility of a big drop - the more money in funds, the more difficult it will be for funds to dump shares. So what it will boil down to, IMO, is a strong, albeit very selective market. Very strong companies will continue to thrive. Any sign of weakness in one company will not be tolerated. The stock will be sold and the stronger companies will get the investment money.
As much as I am hoping for a substantial correction, for no other reason than to vindicate my earlier poor judgment, I'm afraid I don't see it anytime soon.
Counter arguments are welcome and desired.
Regards,
Gil |
