Street light

What a difference six months makes. Last summer, investorsentiment was so bad that stocks were selling off on good corporate news. Noweverything seems rosy again. The stock market is going up, commodity prices arestrong. All an investor has had to do over the last six months is just own themarket. So why are things rosy on Wall Street and only mediocre on Main Street?

The answer lies with the Federal Reserve and the centralbank’s policy to keep the world awash in cash and interest rates artificiallylow. This helps Wall Street much more quickly than it does Main Street. Traders and investors wouldrather place their bets on stocks over real estate. It’s all about liquidityand the ability of investors to trade within it.

Eventually, though, the central bank is going to have toreverse course. It can’t keep pumping up the system forever. The hope amongmonetary policy makers is that the economy will be strong enough to grow on itsown and then the Fed can withdraw some stimulus without negatively impactingthe economy. What’s holding the central bank back from raising interest ratesright now is mostly the employment situation. The job market isn’t healthyenough yet for changes to the monetary policy, but the stimulus is creatingprice inflation on Wall Street (stocks and commodities). It’s not yet happeningon Main Street(jobs and income).

So, we have a situation where the stock market keeps tickinghigher, even in the face of major uncertainty in the Middle East. Institutional investors are happy to buy stocks, becausecorporate earnings are growing and interest rates are so low. It’s a perfectworld for Wall Street and there is a lot of hope out there. Investors arebuying stocks based on those hopes and it’s the typical move: buy onanticipation, sell on the reality. The reality, however, has yet to revealitself.

The stock market is due for a major correction, but it needsa catalyst. So far, geopolitical uncertainty has proven to barely IP65 60W Led Urban light affectsentiment. Even lackluster employment numbers and flat housing prices can’tdent investor enthusiasm at this time. We have a bull market in an overall bearmarket, and it’s all because of the Fed.

Large-cap indices should continue to do well over the near term,because so many of these businesses are well diversified internationally. Asianoperations are providing the growth, while European and American operations areslowly improving.

The right shoulder on the S&P 500 Index continues toform and it’s eerily similar to the left shoulder. Pull up a long-term chart onthe index and you’ll see an amazing pattern that’s very symmetrical. Itcertainly leaves you wondering what the next major price trend will be.Whatever it is, it will be due to inflation.