A low risk / high return profile for the stock market comes along when the Fed fosters strong
liquidity growth and suppresses short term interest rates. Such was the case from early 2009 through
year's end 2014. Last year marked a transition period when liquidity growth slackened as the Fed
kept Fed Bank Credit and the Monetary Base flat and the Fed ended the year by raising short term
interest rates. These developments send fundamental stock market risk substantially higher and
diminish the potential for high returns. The stock market can still rise during such periods, but now
players must realistically address their individual risk tolerance as the economic expansion grows
The best guess now is that business sales and profits are set to reverse downtrends and resume
positive direction. The price earnings ratio of 20x + is nearly fully discounting improving business
sales volume growth and modest but strengthening pricing power. So, to get fairly strong positive
lift from the current SPX 2100 level over the next year or so is going to require good fortune on
the earnings front and some speculative zeal from market players.
The SPX chart is positive based on the indicators but is about to become more pricy. SPX Weekly
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!