Is It Time To Buy Stocks?
That is the question on every global investor’s minds today!
American mid-cap stocks retraced from $241 to $169, as represented by the Russell 2000 stock index. As a result of this brutal sell-off or crash, price to earnings ratios look desirable again!
The S&P 500’s valuation sits well below 20x earnings while interest rates are still extremely low.
The question arises: Have investors over discounted stocks because of the rise in interest rates?
During the interest rate rise of 2004 the stock market experienced healthy gains. In fact, higher rates represent a stronger economy. If the economy falters, the Federal Reserve will find itself staying with lower rates. Even with soaring inflation, raising rates becomes tough during times of economic pain.
However, the American economy is not in a time of economic pain. Moreover, we Americans face more job openings than workers to fill these jobs. If someone can not find work, that is a sign of high standards, not available positions.
Furthermore, many Americans still sit on a large amount of cash earning very little to no return at the bank. Even a 50 basis point rise in rates. As the Federal Reserve wants, represents very little return for the American saver.
Bonds still yield very little, even after the large sell off this year. Bonds might have more pain ahead? But, stocks offer the only way to keep up with inflation!
And that is the question, how do Americans keep up with soaring inflation?
The only answers to this over time have been stocks and real estate. However, real estate is much more difficult and regionally dependent for returns. You can sit on a property in one state and see 0 returns. Yes, Florida and Texas witnessed massive price gains for homes and property. But what about someone who bought a home in Ohio?
In conclusion, stocks are the most efficient method of keeping up with inflation. General Mills, Target or Ford have an ability to rise above inflation on average that is far greater than real estate or anything else. Real estate just has too many risks and factors. Yes, it can be a home run for some people. But, it can also sink others.
However, putting excess savings into the S&P 500 continues to be the safest method of growing capital in today’s society.
But, if you want something extra, consider the Russell 2000. As we mentioned at the beginning, the index fell about 1/3rd over the last 6 months. In addition, Goldman Sachs said: