Why The Market May Go Higher: Simple Bubble Reason Revealed
The markets are trading near their all time highs and very likely willcontinue higher. Today, the SPDR S&P 500 ETF Trust (NYSE: SPY) istrading at $158.85, +0.95 (0.60%). The all time high reached a few weeksago was $159.71. While the markets will go higher, it is important torecognize a growing bubble in equities.
Right now, the S&P 500 P/E sits at around 15. This is high historically butnot outlandish. While earnings this quarter have generally beatexpectations, almost all big companies like International Business MachinesCorp. (NYSE: IBM) and 3M Co (NYSE:MMM) have missed on revenue. Thistells us that growth is slowing but cost cutting is helping earnings per sharebeat expectations.
So with growth slowing, how can the market keep going higher? TheFederal Reserve has manipulated the yield curve so that there is nowhereelse to go for any return on your money. With interest rates stuck atobscene low levels, investors feel they have no other choice than to putmoney into the stock market.
Is this a good reason to invest? Absolutely not. This is how bubbles arecreated and this is no different. If the markets break higher we could seeanother thousand points or more added to the Dow Jones IndustrialAverage before an epic collapse is signaled. Bubbles in history last a while,getting every average person into the market before the collapse. However,the risk of collapse is lurking each day should the right catalyst hit.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.