The Dow Jones Industrial Average and S&P 500 indexes have reached their highest levels since 2007. Good news! The bad news is that it is too late to get in, right?
It’s true that the rapid rise of the major market indices has sparked talk of a bubble among more bearish observers. But there are plenty of bullish experts who insist the time is still right to jump into stocks. And there are a few reasons to believe them:
The rally hasn’t run its course yet.
If history is any indication of the future, then there is still room left to run. This market rally, which began in March 2009, could just be entering its final and most profitable stage, according to some analysts.
Positive signs include the housing market recovery and an improving jobs market. Recent surveys have also shown that both manufacturing and the services industries topped analysts’ expectations recently and are at levels that suggest continued economic growth, not contraction.
Many corporations have a lot of extra cash on hand right now, which could eventually find its way into the stock market. Not too mention all the cash risk-averse investors have had stored in conservative investments over the past several years. That amounts to trillions (yes TRILLIONS) of dollars that could potentially fuel an even greater rally.
The price is right.
Despite the Dow’s 118% gain since the March 2009 low, stocks today are generally still considered to be bargains by historical standards. The S&P 500 was trading at nearly 17 times earnings at the last market peak in 2007—now it’s trading at about 14 times earnings. So there does seem to be room to grow.
It’s worth noting that there are also experts who believe that this market rally is a house of cards—much like the housing boom in 2006—and a looming reality check will bring it down.
If you are an investor for the long term, there is never a bad time to get in the market. You just want to make sure you chose a well-diversified portfolio of differents kinds of investments (stocks, bonds and cash) to help protect you when the market does inevitably correct.