Low inflation is also supportive of higher stock valuations. Growth stocks tend to outperform in low inflation, while value and dividend stocks tend to outperform during periods of above average inflation. This is not an exact science however.
The chart setup above shows the key swing high just reached at 0.957%. Rates moved up a bit after some of the election uncertainty was taken off the table. But given low inflation and high unemployment, I think there is a good chance this will prove to be resistance in the near term. A break above however, would put a target of 1.336% to 1.429% in play. I just can’t see rates getting higher than that until there is a return to normalcy. But who knows.
Summary: Inflation is still low, and unemployment is still high. The Fed remains in play and some fiscal stimulus is likely coming within the next few months. Economic growth is moderating from the record Q3 results, but still growing. Rising cases puts the threat of disruption at the forefront. I don’t foresee this as being enough to push the economy into a double dip recession. But there is much outside of anyone’s control.
Because there is such a wide range of potential outcomes, it is important to remain well diversified. This is not the time to pile into the areas of the market that have outperformed. Remember, the markets are cyclical. The outperformers eventually turn into the underperformers (and vice versa). The key to successful long term investing is to not get too excited when things are good, and not get too pessimistic when thing
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