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If you've stayed out of stocks recently, you might be worried that you've missed your chance to get back in. After all, they must be expensive now that the Dow Jones industrial average has risen nearly 130 percent in four years to a record high.
The good news is that stocks still seem a good bet despite the run-up. The bad news: They're no bargain, at least by some measures, so don't get too excited.
Many investors obsess about stock prices. But you must give equal weight to a company's earnings. When earnings rise, stocks become more valuable â¿¿ and their prices usually rise, too.
That seems to be happening now.
"We've had record profits upon record profits," says John Butters, senior earnings analyst at FactSet, a research firm. "And estimates are we'll have record profits this year, too."
What's more, some of the typical threats to stock run-ups â¿¿ such as rising inflation and interest rates, which often trigger a recession â¿¿ seem unlikely to appear soon.
Among reasons to consider stocks again:
â¿¿ A STRONGER ECONOMY:
There are no signs of a recession. And that's encouraging for stocks, which almost always fall ahead of an economic downturn. Stocks started falling two months before the Great Recession began in December 2007 and one year before the recession that started in March 2001.
Better yet, the economy may be on the verge of faster growth. The Labor Department announced Friday that the unemployment rate in February dipped from 7.9 percent to 7.7 percent, its lowest level since December 2008. Employers added more than 200,000 jobs each month from November-February, compared with 150,000 in each of the prior three months.
More jobs mean more money for people to spend, and consumer spending drives 70 percent of economic activity.