I was watching Blomberg TV this morning (I know, I really need to get a life) and two money managers gave their opinions about the current situation. Both agreed with the following analysis of the markets right now.
1.) On one hand, you have the 10-year Treasury yielding 5.11% and an effective Fed Funds rate of 5.25%. In other words, cash has a decent yield right now with very little risk.
2.) On the other hand, volatility once again returned to the stock market last week. Traders learned that stocks can also go down. So from a traders perspective, the question becomes, "can stocks gain more than 5.25% at an acceptable level of risk?" Things to look at for stock's possible advance are:
-- According to Barron's, the S&P 500's PE is 18.42. This isn't cheap, but it's not expensive.
-- Interest rates are increasing, which may dampen some M&A activity and slow consumer borrowing on things like houses.
-- Where will second quarter earnings come in? Will international sales once again save the day?
There are a lot more variables to the equity market right now, especially compared to the lay-up of investment in cash.
