In case you didn’t notice, the stock market has been reaching new highs on an almost weekly basis for most of 2013.
Corporate profits are up 35 percent since the start of the “Great Recession” in 2007, and our economy (GDP) has been humming along comfortably quarter after quarter.
Individual investors seem to be getting quite comfortable with this market as well. One barometer measuring the confidence of individual investors is the amount of money flowing into stock based mutual funds and exchange traded funds, or ETFs. These products, especially the mutual funds, are typically used by individual investors inside retirement plans and at the direction of financial advisers inside brokerage accounts, so watching inflows is useful as a gauge of overall bullishness among individuals.
In this regard, according to TrimTabs research investors, have added over $60 billion to these types of stock investments so far this year. If this incredible trend continues, 2013 will see the largest investment inflows of this type since 2000, which should continue to provide a strong tail wind to the stock market.
I know the unemployment rate has been disturbingly stubborn, but employment is what is known as a lagging indicator, meaning it typically improves at the later stages of an economic cycle. Anecdotally (and historically), higher unemployment indicates the economy still has room to improve, which from an investor’s point of view is a good thing.
Even from a political point of view, with the second-term Presidential scandal season now in full swing, Washington is nicely distracted and shouldn’t be attempting to “fix” anything new for the time being (thank goodness), so we won’t have to worry much about expensive new regulatory overhauls or poorly structured spending initiatives.
It all seems so normal. What could go wrong?
Well as investors, it is our mandate to continually ask this question. If you’ve been reading me for a while you know I am a firm believer in the unknown unknowns being the real trouble makers.
On the whole, this could be one of those periods when there could be some low stress money left to be made. Sure there are issues with the Fed, and issues with interest rates and market volatility is sure to pick up a bit as these issues normalize. For the time being however, I am finding myself a bit more content to sit back and enjoy the ride, which is something I haven’t felt in a long time. Now that makes me nervous.