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Longest quarterly streak since 1998…With today’s modest rise in the S&P500 index, the
market has achieved its longest streak of quarterly gains in 16 years.
What’s the
point? The stock market is being
driven up by a number of factors including prospects for accelerating economic
and earnings growth, continued accommodative Federal Reserve policies, moderate
inflation, and dismal return prospects in alternative assets, particularly
bonds. While the market will probably continue to grind higher in the near
term, there a number of signs that have us more concerned about the
sustainability of the advance in the near term. These factors include: high
level of investor complacency/confidence; growing consensus thinking that
stocks are the “only game in town”; extended condition of certain technical
indicators; potential for an “inflation scare”. Bottom line: while we believe the stock market remains in a
long term bull trend, the risks of a correction in the near term appear to be
increasing. Link: http://money.msn.com/business-news/article.aspx?feed=BLOOM&date=20140630&id=17740390
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New Fed study sees potential for rising inflation……A new study by the Federal Reserve concludes that as
long as long-term unemployed are able to participate in the recovery in jobs,
inflation will remain below 2% this year and next. If the long-term unemployed are
not able to find work, labor market tightness for more “employable” workers
will increase, driving up wage rates and inflation.
What’s the
point? The idea that long-term
unemployed could actually cause a rise in inflation potential seems
counterintuitive, however, as these workers lose skills, they become less
employable, placing greater tightness on available pool of skilled labor. There
is a variance of opinion among economists about this potentiality. While it
remains to be seen how this plays out, if we had to bet one way, we’d lean more
towards the side of rising inflationary potential, however, there are a number
of factors that we believe will continue to restrain inflation including:
demographics (aging of baby boomers), technology advancements (substitution of
capital for labor), and a new era of low monetary velocity which reduces the
growth or inflation potential of increased money supply. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&Date=20140630&ID=17741367&topic=TOPIC_ECONOMIC_INDICATORS&isub=3
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