By Hal M. Bundrick for MainStreet
NEW YORK (MainStreet) Witha more than 25% return in the S&P 500 for the year to date, and in spite of the prospect of the Federal Reserve ultimately reducing its economy bolstering bond buying program, market strategists are upbeat in their forecasts for the remainder of the year and into 2014.
"We believe the economy is set to accelerate in the fourth quarter, similar to the last three years," says investment manager Elaine Garzarelli, president of Garzarelli Capital. "In the 1995 government shutdown, consumer activity recovered quickly. Interestingly, the shutdown has helped by delaying (Federal Reserve bond purchase) tapering."
Garzarelli says the yield curve indicator, a key factor in her monetary indicator composite, has been bullish since October 2008.
"We are just not seeing the inverted yield curve that would give us any cause for alarm," Garzarelli says. An inverted yield curve is when short-term interest rates are higher than long-term rates. "Historically, an inverted yield curve has appeared before severe market corrections or bear markets. But we are seeing no evidence of this happening any time soon."
In fact, Garzarelli believes interest rates are pointing to a strong stock market.
"A bullish signal for this indicator is when the fed funds rate is 200 basis points or more below the 10-year bond rate," she says. "Currently, the 10-year bond yield is at 2.50%, and the Fed funds rate is 0.09% a spread of 241 basis points, which is extremely bullish."
Synchronized global growth
Strategists at Russell investments are also optimistic, favoring stocks over fixed income investments, as they remain moderately positive on global equity markets.