Third quarter earnings are coming in slightly above expectations while revenue growth remains weak.
The Federal Reserve bond purchase program remains in place most likely until 2014.
Congress kicked the debt ceiling and budget negotiation cans down the road with a new deadline of Feb. 7, 2014 for an agreement.
Until this year investors had the luxury of a 30 year bond bull market to fall back on for low risk returns. With stock markets now significantly outperforming bond markets more money flows in to the asset which treats investors best.
US stocks at 15 times 2014 earnings estimates are not cheap but not expensive. They are very capable of going to higher multiples in a low interest rate environment with rising earnings.
There are few signs of a classic stock market top such as Fed tightening, excess leverage, or too much bullish sentiment.
We typically get to the point where stocks are the talk of the town and investors can do no wrong before a big setback.
Asian, European and Emerging market stocks are still feared and even loathed by some. Yet Japan +22%, Germany +19%, France +18%, UK +13% are big winners this year. Emerging markets are coming back from big losses and commodity based countries are hopeful for better times in 2014.
In this world of slow growth, companies with high quality products, record levels of cash, share buyback programs, and rising dividends are preferred to low coupon fixed income investments.
The global stock rally should continue barring monetary tightening or a regional conflict of significant magnitude.
Doug
November 4, 2013
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