(Source: Yahoo! Finance)
The Dow Jones Industrial Average broke 15,000 for the first time today. CNBC's Kelly Evans for City A.M. on why slowing GDP growth isn’t eroding unusual stock market confidence:
Call it the “great” recession. Lombard Street insists the US slipped into recession in the second quarter of 2013, as the full brunt of the budget cuts known as the sequester hit. Even the rosiest of forecasters acknowledge that growth slowed sharply from the first three months of the year. And yet major US stock indices continue swaggering to fresh all-time highs.
Contradiction? Not quite. It is precisely because growth continues to underperform that the Federal Reserve can and will keep interest rates at record lows and its supplemental bond-buying program in place. And that guarantees two things: first, that investors – especially pension funds which need to hit annual return targets north of 5 per cent -- will continue to pile into riskier, higher-yielding assets; and secondly, that companies able to take advantage of these super-low borrowing costs will continue issuing debt to buy back shares of their own stock, supporting both their individual performance and that of the broader market.
No wonder investors describe it as a hold-your-nose-and-invest kind of environment. Voodoo shop? You bet, says Brian Reynolds of Rosenblatt Securities; but “we think this boom will go on for years to come because of those [pension] cash flows.” A new acronym – FOBOR, or FOrced Buyers Of Risk – is making City rounds. Even the old Chuck Prince line (“As long as the music is playing, you’ve got to get up and dance”) is becoming alarmingly common again.