To jump in or not to jump into the stock market? That’s the question that many investors – both big and small – are asking after the Dow Jones Industrial Average hit a new high on Tuesday, surpassing the record set in October of 2007.
Behind that question is a debate about the two big factors driving the stock rally:
1. Massive, multi-year and multi-trillion dollar stimulus programs from the Federal Reserve, which have kept interest rates at historic lows, bonds cheap and have helped the housing market recover. How long can those continue, and will they have any bad long term effects on the economy?
2. High corporate earnings. John Bogle, founder of the mutual-fund giant Vanguard Group, says “I don’t believe valuations are excessive here.” That’s investor speak for “this is not a bubble.” But what if the bubble is not in the stock price, but in the corporate earnings?
Earnings are high in part because companies have significantly lowered labor costs – laying off some workers and successfully getting more from remaining workers without without any substantial pay increases.
- Do you think it’s a good time to jump into the stock market? Join the debate on our Facebook page.
- Greg Ip, U.S. economics editor for The Economist magazine. He’s also author of “The Little Book of Economics: How the Economy Works in the Real World.”