3 Reasons Why You Should Still Buy Stocks

Even as major stock indices hover just below their all-time highs, there are a variety of convincing reasons that stocks have a lot more room to run.

Aug 23, 2014 at 2:00PM


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Stock market indices are still trading close to all-time highs. The S&P 500 stands just below 2,000, and the Dow Jones Industrial Average Index is just over 16,650. Both indices have put in respectable returns over the past 12 months: The S&P 500 gained roughly 21%; the DJIA, 13%.

These remarkable runs have been going on for the past five years, as the U.S. economy has bounced back from its depressed state in early 2009. The S&P has returned around 190% since the economy bottomed out in March 2009, and the Dow has gained approximately 160%.

With a stock market rally under way for more than five years and equity indices close to their respective all-time highs, should you still consider buying stocks, or is the party over for investors?

Long-term investors should buy equities
Of course, there's no easy answer, and investors differ in terms of risk tolerance, investment horizon, and asset allocation needs.

But if you're a long-term investors who has a longer than a one-year time horizon, I would advocate for an investment in stocks, even though investors will have to pay a premium on their stocks compared with just a year ago.

Let's look at three reasons why, from an economic point of view.

1. Interest rates are still low
Though the stock market has rebounded strongly since 2009, interest rates haven't. The Federal Reserve has met the financial crisis with an unprecedented strategy of printing money while keeping interest rates at ultra-low levels.

The Fed is now cutting back on its monetary stimulus package, which is a positive sign for the economy, since that means the Fed considers the economy to be strong enough to grow without continued artificial life support. Meanwhile, interest rates are still near zero, and it will take a while to get them back to normalized levels of 2%-3%. But rise they will, and interest rates increase in a robustly growing economy. 

2. Consumer spending is likely to continue to increase
If the economy grows more dynamically, consumer spending will increase as well. As unemployment falls, incomes increase and confidence in economic prospects bounces back, consumers get ready to open up their wallets.

Consumer spending has already recovered to a great extent since 2008. That's good for the U.S. economy, which largely depends on consumption to drive GDP and income growth.


Source: Tradingeconomics

Yet the economy still has a lot of room to grow, considering that the unemployment rate stood at 6.1% in June and interest rates are still near zero.

With growing consumer spending, cyclical sectors of the economy such as chemicals, transportation, industrials, financials, retail, and real estate should be doing fairly well in terms of stock market performance going forward.

3. Earnings growth
Many companies should see sizable earnings increases in the near to medium term. Retailers should especially see earnings tailwinds stemming from a continued recovery in consumer spending.

Increasing company earnings should lead to higher company valuations and index prices and make a strong case for continued investments in equities over the next couple of years.

The Foolish bottom line
The U.S. economy has great potential to continue its recovery. Other crucial growth impulses besides consumer spending could come from a stronger housing market and businesses that step up their investment spending.

All of those factors are indicative of economic growth, which should translate into higher equity valuations for publicly listed companies and higher stock market indices. The time for stocks is not over yet.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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