US Stocks: End Of QE2 Means Lower
Stock Prices Ahead
The Dynamic Wealth Report
May 25, 2011
by Karl Stevenson, Editor
There’s an old saying amongst traders…
“Sell in May and go away!”
While this advice isn’t always right, 2011 is the year to take heed of
this time tested adage. As the editor of the currency services here at
Hyperion, I see trends developing in the US Dollar that don’t bode well
for stocks.
Now, before you dismiss this warning out of hand, you should know one
thing. I’m waist deep in currencies all day, every day. So I see things
from a slightly different vantage point than my colleagues…
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
And I’m seeing choppy waters ahead for stocks.
If you’re invested in the stock market, it may be time for you to
consider moving out of stocks and into cash.
Let me explain…
Now, I’m sure you’re familiar with the Fed’s quantitative easing
program, also known as QE2… It’s been responsible for the Fed buying
over $600 billion worth of US treasuries from large investment firms,
such as Goldman Sachs.
The program was set up in hopes of keeping interest rates low as the
economy strengthens. While we can debate the benefits of QE2, there’s no
denying it’s freed up capital at these large investment shops. And in
turn, they’ve been investing their funds into higher risk assets such as
stocks.
But here’s the thing… the QE2 program is set to expire in June. In other
words, the source of all the liquidity flowing into the stock market is
about to be shut off. And without these funds, it’s going to be tough
for stocks to keep moving higher.
In fact, investors are already preparing for the end of QE2. You’ve
probably noticed that stocks have been moving lower for weeks. Clearly,
investors are taking their stock gains and moving them to safer assets
like Treasuries.
But this is just the beginning of a larger downward move. You see, the
Fed has told us they intend to tighten monetary policy in coming months. We might even see an interest rate hike in late 2011. The Fed’s tone is
much more aggressive than it was earlier this year.
In my opinion, this coming change in monetary policy is another force
that’s going to drive money out of stocks.
You see, a rise in interest rates will increase the cost of borrowing
for US companies. Corporate bottom lines will see a negative impact from
the increased cost of doing business. And you know what that means…
weaker earnings ahead.
But investors won’t wait around to see this play out. They’re going to
anticipate lower earnings in coming quarters.
And before the actual earnings reports come out, we’ll see stocks sell
off. Remember, today's stock prices reflect investors' expectations
about the future. And if investors are expecting higher interest rates
and weaker earnings ahead, they’re going to start exiting stocks well
before these events happen.
With QE2 coming to an end, all signs point to less liquidity and higher
interest rates. It’s pretty clear where the markets are headed.
I can’t
see how they can continue driving higher for any significant gains.
So, what can you do to protect your hard earned stock market gains?
The best thing to do is tighten up trailing stops on your open
positions. The last thing you want to do is sit by and watch your hard
earned profits disappear.
The other thing you can do is get out of your economically sensitive
stocks now. Those stocks do well when interest rates are low, but they
tend to suffer when rates go higher.
We’ve got some choppy waters ahead. Take action now to protect your
portfolio…
• Copper (Near $4.11/pound)
The red metal has made a solid turnaround in recent trading. Copper has
been trading below $4.00 per pound for some time. The recent surge in
buying comes on the heels of a Goldman Sachs recommendation. Look for
copper to head higher in the short term.
Share This Story:
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map