Goldman Sachs (GS) analysts argue that maintaining a high level of stimulus through more specific forward guidance is appropriate for several reasons. First, inflation remains significantly below the Fed’s 2% goal. Second, the labor market still has plenty of slack when the participation gap is considered. Third, the “neutral” Fed funds rate might be lower than normal now than in the past due to structural headwinds.
Goldman expects the first interest rate hike to be at least two years away — sometime in early 2016. If that really is the case, then Fed support could keep the market rally going for at least one to two more years. Keep that in your back pocket as a reminder to buy during dips in the coming months.
And while you’re at it, think about the S&P 500 Large Cap Index (SPX) chart above, which reminds us that the market rose to new highs repeatedly for 18 years from 1982 to 2000. It then took a break for 12 years, and is now just a year into its latest streak of new highs.
For some reason, new highs worry people when they shouldn’t. The highs just reflect a rising tide of ambition — the relentless yearning, energy and innovation of millions of individuals as they create and consume new products and services to further their own interests.
Just as you would not expect a four-year-old to stop growing taller, you should not expect the market to stop rising to new highs.