Will Growth Shift From Housing To Stocks?
A: Looking at the fundamentals that are powering both the US housing markets & stock markets, it is looking more and more likely that general speculation could shift from housing to stocks. Keep an eye on the 'best of breeds' in the stock market for the next few years!
It has been a little over 5 years now since the stock market had topped out and started its painful descent to the bottomless pit. It was also around this time where smart money started pouring into real estate across the country. Even with the horrific tragedy of 9/11, housing was resilient and continued to power its way up to record levels! So now what?
Why not the stock market!
Its important to note that the stock market is a LEADING INDICATOR of the overall economy, looking forward a good 6-8 months or so at what is to come. That is why the market uses P/E ratios to value a stocks current bid and asking price. For all you homegamers, P/E means Price to Earnings ratio, and represents what the company is trading at compared to its expected future earnings. Generally, a growth stock has a higher P/E ratio due to the fact that earnings are expected to grow in the near future. Whereas cyclical stocks generally have lower P/E ratios to go with their more predictable and sustainable earnings potential.
Now, there are certain underlying factors that I see that would signal a 'second coming' of the stock market in the years to come.
First, a new Fed Chairman. Mr. Bernanke is set to take over as Chairman of the Fed (arguably, the 2nd most powerful position in this country) in January, as Mr. Alan Greenspan retires. The street likes Mr. Bernanke as the replacement Fed Chairman, and his straightforward manner in which he conducts himself.