Page 24 - ARUBA TODAY

Monday 19 June 2017 BUSINESS
A24

This is peak investing: Stocks, bonds and concerns are up

By STAN CHOE does happen as an oppor- cash into stock and bond or will. the Fed to continue raising
AP Business Writer tunity to buy low. funds this year, but con- What could trip it up: Price short-term interest rates,
NEW YORK (AP) — Nearly Analysts pin much of the cerns are bubbling up else- tags are high. the general call at the start
everything has come up credit for the upsurge in where. This most recent quarter of the year was for rates to
a winner for investors this markets on all the stimulus Here’s a look at what’s notwithstanding, compa- rise.
year. that central banks have been driving markets, and nies’ stock prices have The opposite happened.
Stocks are bumping up thrown at them. By keep- what risks lie beneath: been rising faster than Economic growth has re-
against peak levels. Bonds ing interest rates low and their profits. When measur- mained sluggish, and the
are making money despite buying trillions of dollars THE U.S. STOCK MARKET ing the S&P 500 against its yield on the 10-year Trea-
a raft of predictions to the of bonds, the Federal Re- Why it’s so high: Corporate expected earnings over sury is at 2.15 percent af-
contrary at the start of the profits are climbing again, the next 12 months, stocks ter starting the year at 2.47
year. Stock markets over- have been this expensive percent. That drop in rates
seas, notoriously poor in- just 1 percent of the time has pushed up prices for
vestments for much of the over the last 10 years, ac- bonds, and the most com-
last decade, are perking cording to Jack Ablin, mon type of bond fund
higher. Even gold, which chief investment officer at has returned 2.9 percent
typically glitters brightest BMO Private Bank. this year, more than it has
when other markets are Another way to measure in two of the last five full
struggling, is up this year. stock prices popularized years.
If it feels precarious to have by Robert Shiller, a Nobel What could trip it up: A rise
so many investments doing prize winner in economics, in rates, which many Wall
so well, particularly when looks at how much com- Street watchers still expect
the economy itself is still panies have earned over to happen. Economic
growing only modestly, the prior 10 years, in hopes growth may still be only
markets are giving few of smoothing out the ef- modest, but the job mar-
indications of worry. The Specialist Anthony Rinaldi is silhouetted on a screen at his post fects of boom-and-bust ket has improved, and the
volatility index that trad- on the floor of the New York Stock Exchange. Stocks are at peak periods. That measure says Federal Reserve is itchy to
ers use to measure fear in levels. Bonds are making money despite a raft of predictions to the S&P 500 is at its most ex- pull rates further from their
the U.S. stock market hit its the contrary at the start of 2017. Even stock markets overseas, pensive level since the dot- record lows.
lowest, as in calmest, level notoriously poor investments for much of the last decade, are com bubble was deflating The Fed raised rates
perking higher. If it feels precarious to have so many invest-
last week since 1993. And ments doing so well, even when the economy itself is still grow- in 2002. Wednesday for the third
stocks have been so strong ing only modestly, markets are giving few indications of worry. THE BOND MARKET: time since December. It
for so long that investors But contrarians are feeling more reasons to pause. Why it’s so high: Since the also said it plans to start
have been rewarded for (AP Photo/Richard Drew) 2008 financial crisis, the paring its bond invest-
using any dip in prices that Federal Reserve and other ments later this year. Other
serve, European Central and analysts expect earn- central banks around the central banks around the
Bank and others have ings for S&P 500 companies world have reached deep world aren’t yet pulling
helped lift prices for bonds. to rise 10 percent to a re- into their toolbox to sup- back on stimulus. But when
And when bonds get more cord this year after stalling port markets. The Fed, for they do, it would mean
expensive, it makes stocks or falling the last two years. example, owns $4.5 trillion fewer dollars chasing after
and other types of invest- Revenue growth is also in Treasurys, mortgage- bonds, and the fear is that
ments more attractive in stronger for companies, backed securities and oth- could lead to a cascade
relative terms, even if their which offers a more sustain- er investments. With cen- of pressure pushing down
price tags no longer look able and healthier route to tral banks hoovering up so on prices across different
cheap at face value. gains. For years, businesses many of the world’s avail- investments.
That has some contrar- depended instead on cut- able bonds, prices have European stocks stumbled
ians worried about what ting costs and buying back been high. on Thursday, for example,
will happen when central their own stock to squeeze This year, many analysts after the Bank of England
banks move away from out more earnings per expected bond prices to came closer to raising in-
stimulus. The Federal Re- share. drop in tandem with a rise terest rates than many ex-
serve raised rates again If Washington is able to in interest rates. When rates pected.
at its meeting on Wednes- cut tax rates, as Republi- climb, newly issued bonds “My worry is more about
day, and it’s talking about cans have promised to do, pay more in interest and the bond market than it is
paring back its bond in- profits could be set for an make the lower yields paid in the equity market,” said
vestments this year. Mom- even bigger bounce. And by older bonds less attrac- Wells Fargo’s Hartman.
and-pop investors seem stock prices, at their heart, tive. With expectations for “The good times are rolling,
relatively unfazed for now. reflect how much profit the economy to improve, but I worry that at some
They have been plowing companies are producing inflation to tick higher and point it has to end.”q