Yesterday, the Federal Reserve surprised every economist who watches its every move. Fed Chairman Ben Bernanke announced that the Fed would continue to purchase U.S. Treasury and Mortgage-backed bonds in order to keep interest rates low. The now famous QE3 program begun by the Federal Reserve almost one year ago lives on.
The stock market took the news well. Both the Dow Jones Industrial and the S&P 500 closed at all-time highs.
You can’t blame the stock market for overreacting to the upside. For the last several months the U.S. stock markets have been in an “all news is good news” environment.
Recent bad news about retail sales, unemployment, and housing sales has all been shrugged off as unimportant. The same goes for the lowering of company earnings estimates going forward into 2014.
Individual stock market investors should apply a little bit of common sense to today’s headlines.
The Federal Reserve can’t stop buying U.S. Treasury and mortgage-backed bonds because the pace of the U.S. economic recovery is slow. If the Fed stopped or even slowed down buying bonds, interest rates would continue to rise. The very weak U.S. recovery would then stall, if not stop dead in its tracks.
Today’s all-time high price levels for the Dow Jones Industrials and S&P 500 stocks are not backed by economic and company earnings fundamentals. The Fed knows that. And that is the main reason why they can’t stop supporting the U.S. economy at this time.
Individual stock market investors should take full advantage of the current all-time stock market high price levels. Don’t repeat your past investment management mistakes of riding the stock market up; then riding it all the way back down again.
At the top of the current stock market cycle, preserve your stock market principal now.
Successful stock market investing is not based on how much investment gains you have. It is based on how much investment gains you keep.
Take inventory of each stock market investment that you currently own. If the current prices are close to all-time high price levels, you have every reason to hang on to that investment.
You most likely own some individual stocks or stock mutual funds that have lagged the overall stock market averages. Now is your best chance to get out of the worst stock market investments that you currently own at multi-year high price levels.
You can use the proceeds from the sales of your lagging stock market investments to buy better performance stock market investments after the next great stock market decline.
The fight over the debt ceiling and the U.S. Government shutdown begins tomorrow in Congress.
Ric Lager
Lager & Company, Inc.
