The question now is just how much principal investors are willing to lose in treasuries (or see flat-lining in most other fixed income investments) before they can stand staying away from stocks.
2. International Markets Are on Fire
Meanwhile, international markets are red hot.Overseas stocks saw the hardest fall post 2008 as the higher beta in emerging market economies suddenly started looking like less of an advantage and more of a liability. But in the last few months, they've been rallying hard. Despite the economic crisis in Europe, equity markets in the EU have been hammering home new highs, Japan is coming off of a generational bottom, and the developing world has been doing one better. Emerging market stocks have been showing extreme relative strength versus the S&P 500, with indexes like Hong Kong's Hang Seng, the Shanghai Stock Exchange Composite, and Mexico's Bolsa all looking bullish. >>5 Dividends Are About to Get Bigger Why are international rallies good for U.S. markets? First, beefier valuations aboard for stocks help make U.S. stocks look cheaper, drawing more international cash into the market. And second, in this connected world, how many S&P or Dow components do you know of that don't do business overseas? Market rallies overseas increase the balance sheet values for U.S.-listed firms too. 3. Market Technicals Are Bullish You don't have to be a whiz technical analyst to see what's been going on in the S&P 500 since 2008's market crash: Stocks are in an uptrend, simple as that. And despite all of the "overbought" talk that's been circling around stocks for the last couple of weeks, the momentum gauge that's spotted every other correction along the way doesn't agree (that gauge, incidentally is nine-week RSI). If we're not even overbought enough for a healthy correction, why would stocks be overbought enough for a crash? I've said before that the last decade in stocks mirrors the price action that we saw in the 1970s -- and in the 1930s before that. Each of those periods came with major stock crashes that convinced investors Wall Street couldn't be trusted -- and those last two were followed up by long-term sustained rallies for stocks.