This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

3 Reasons Irrational Enthusiasm for U.S. Stock ETFs Will Continue

NEW YORK ( ETF Expert) --The city of Detroit just filed for the largest municipal bankruptcy in U.S. history. Crude oil is pushing $110 per barrel. Microsoft (MSFT), eBay (EBAY), Intel (INTC) and Google (GOOG) severely disappointed in their second-quarter earnings reports.

Housing starts dropped to its slowest pace in 10 months. Also, while it may appear unlikely to market watchers, the Federal Reserve may still taper its bond purchasing program earlier than anticipated.

Less money for retirees, less consumption due to the gas pump, lower sales by bellwether corporations, fewer homes being constructed and less borrowing due to elevated interest rates. Is this the stuff that stock market rallies thrive upon? Apparently so.

Yet, the remarkable run-up may be running out of time. One of Warren Buffett's favorite indicators of over-the-moon stock prices is the ratio of total market capitalization to gross domestic product. According to CNBC, the net ratio stands at 118%. Previous moments in history when the ratio exceeded 100% include 1999 and 2007 -- right before humongous stock bears mauled the S&P 500 and slashed its value in half.

Nevertheless, this Fed-fueled uptrend has defied analyst criticism and brushed aside guru bearishness for years. Famous doom-n-gloomers from Roubini to Rosenberg have found themselves waving the white flag. Meanwhile, perma-bulls are expecting the S&P 500 to gain at least another 10%-15% by year's end.

Personally, I am playing it relatively safe with my client allocation to equities. That said, there are at least three solid reasons why irrational enthusiasm may "win out" for a while longer.

1. Underperforming institutional dollars. Hedge funds and most institutional advisers have struggled to keep pace with U.S. stocks; any effort to diversify or hedge with competing assets (e.g., commodities, currencies, foreign stocks, foreign bonds, domestic bonds, etc.) have only dragged on portfolio performance.

It follows that in a "what-have-you-done-for-me-lately" investing arena, the pressure to perform has resulted in limited diversification and greater ownership of U.S. equities.

2. Political necessity. Due to the Federal Reserve's manipulation of interest rates, corporations have been able to restructure debt and buy back shares of stock; consumers have been able to purchase big ticket items like residences and automobiles.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TSLA $234.01 -3.20%
YHOO $35.96 -1.60%
AAPL $94.69 1.10%
FB $117.76 -0.68%
GOOG $693.17 -0.72%


Chart of I:DJI
DOW 17,719.20 -171.96 -0.96%
S&P 500 2,059.02 -22.41 -1.08%
NASDAQ 4,758.6670 -58.9270 -1.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs