For the first time in 17 years, US stocks are outperforming all other asset classes. And that’s in the slowest growth environment since 2009.
The S&P 500 index has gained 14% so far in 2012. That beats Treasuries, corporate bonds, commodities, the dollar, and Asian and European equities.
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The last time equities outperformed was in 1995 when the S&P 500 was posting the largest advance in five previous decades.
At a price-earnings ratio close to today’s, the index gained another 93% over the next 2 ½ years. The Fed’s proactive stance on economic stimulus along with its commitment to keep interest rates low until 2015 have increased investor confidence.
Investors still have low equity allocations in their portfolios. Along with the easy monetary policy, skeptical investors, and an improving economic outlook, it’s a recipe for a bull market.
Investors have been withdrawing money from the equities markets since 2007 and it will take another year for confidence to increase among individual investors.
Analysts say the equities markets have been telling investors the US economy is in better shape than it seemed.
The bears say the Fed can only support growth to a certain point and that the fiscal cliff is causing investors to use caution when allocating assets.
Wall Street strategists tracked by Bloomberg expect the S&P 500 index to top its all-time high next year.