The Federal Reserve offered a modestly upbeat forecast last week on the U.S. economy. The Fed noted that economic activity has rebounded in recent months and the economy is showing sufficient strength to create jobs. The Fed is expecting gradual gains.
Bottom line: Interest rates will stay at near-zero levels until at least mid-2015.
"This gives consumers and businesses with variable rate debt, such as credit cards, home equity lines of credit, and small business loans, time to pay down those balances in an environment of low interest rates," said
And for now, it gives
Overall, it's been a pleasant year so far for investors. U.S. stock funds were up on average 3.96% for the year through
Morningstar's data showed that about 4 in 10 stock funds turned in gains of more than 5% for about the first six months through
The Dow Jones industrial average is hovering around 16,900 and sits just a short rally away from the milestone 17,000 mark.
"It will invite the skeptical investor to be a buyer," Sowerby said.
He said a strong driver in the stock market's rally has been the Federal Reserve's incredible monetary easing.
"It's been a great party until it's not a great party," Sowerby said. "The Fed has been extraordinarily friendly. The key will be when does the Fed become less friendly."
"Job creation has recently been strong," Dye said. "I expect U.S. payroll job growth to continue in the vicinity of about 200,000 net new jobs per month through the second half of this year."
The risks: Geopolitical unrest in the
But Stovall said the bulls have the momentum on their side. The Standard & Poor's 500 is up more than 4% in the past 13 weeks and all 10 industry sectors are positive.
Even so, he said, investors are wise to be somewhat cautious going forward.
He noted that the S&P 500 is priced to perfection and the S&P 500 has gone 32 months without a decline of 10% or more. The average since 1945 is a 10% decline every 18 months or so.
"It doesn't mean we can't go higher but we would have a hard time justifying adding to positions when we're already at fair value," Stovall said.
As for auto-related stocks, the ride has been mixed.
While more negative media does not help, Langan said the testimony and victims fund could be viewed as positive steps that could move GM past the recall issue.
But he's less optimistic about suppliers as a group. UBS has neutral ratings on many suppliers, including
"Unlike the suppliers, automakers are trading at a discount to their historic valuations despite positive structural changes," Langan wrote in a
Overall, the Federal Reserve's upbeat comments seem to have soothed some investor anxiety. Even so, experts say investors need to be more selective.
He said longer-term opportunities center on "pockets of innovation," especially within technology and health care.
But other areas create much more concern.
"Alarm bells are starting to go off in a few areas, including high yield bonds and bank loans--given today's very low-yielding environment and the future prospect of rising rates," Herbst said.
"Fixed income in general is looking more than a little scary."
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