Here's Why the S&P 500 Is at New Highs
Don't scoff at the constant record highs in the S&P 500. There's a reason for the market madness.
"In a vacuum, you could make the argument that there are warning signs," said David Nelson, chief strategist at Belpointe Asset Management, based in Greenwich, Conn. "In the real world, where interest rates play a factor and stocks compared to a lot of other asset classes are just a better buy."
On Friday, the S&P 500 reached at record high at 2,175 and is up 6.4% since the start of the year.
Nelson said if there's a bubble brewing, it's in the bond market because institutional investors seem to be willing to invest lots of capital in sovereign bonds with negative rates of return or zero rates of return.
The 10-year German bund yields minus 0.032%. Japan's 10-year yield stands at minus 0.024%. Bonds and prices move in opposite directions.
Speaking of interest rates, the Federal Reserve wraps up its July policy meeting on Wednesday. The central bank isn't expected to announce a hike to short-term interest rates, but investors will be looking for commentary on Brexit fallout, as this is the Fed's first meeting since UK voted to leave the European Union on June 23.
"Every time they speak, I get more confused," Nelson said. "No matter what the Fed says this week, you can bet there will be a parade of governors all saying something probably just the opposite."
Meanwhile, the Bank of Japan wraps up its policy meeting Thursday. Additional easing measures or another cut to benchmark interest rates, pushing them further into negative territory, are a possibility.
"They've been pushing the envelope on this," he said. "They believe negative rates of return [on bonds] will entice people into riskier assets and so far that has worked, but at some point there will be a price to pay."