By Peter Switzer

Wall Street was slightly negative overnight ahead of Federal Open Market Committee (FOMC) minutes, which could lead to interest rate rise speculation. But with the US stock market in record high territory, a sell off isn’t out of the question. So does this tell us that it’s too late to get into stocks, if you’re not already in? And if you are in, should you put in more money?

This gets down to a simple question to ask but a tricky one to answer. It goes like this: “How long will this rally last?”

Focus on the US

The key is the US as it’s one of the few significant economies of the world that looks full of economic growth promise. That said, the UK is looking promising, while Europe looks worrying, though it could surprise over 2015. Japan has gone back into recession but experts like David Bassanese, on this very website, say its stock market now looks like a buy!

And believe it or not, JPMorgan in the US put out a note recommending European stocks over American!

Now that’s not to say that US stocks won’t keep going higher, but it could be a slower rise, with a bit more volatility, as rate rise speculation increases the better the economy performs, which will lead to more rate rise speculation.

Market smarties think the first rate rise will lead to a sell off but it will be a buying opportunity for the courageous, because the only reason the rise will happen is because the economy will be doing so well, that it will create inflation fears speculation.

US official interest rates are close to zero and these would have to go to about 3% or higher before markets would turn very negative. And this would have to be in concert with gradually disappointing economic data and rising inflation.

The Yanks are still in the very bullish phase with permits to build houses spiking to the best figures in six years! Add in a rise for mortgage applications and the view is that US housing looks healthy, which is a strong omen for the future of the economy.

Further afield
Both Europe and Japan are a long way behind on the recovery road but this means their stock markets have potential upside, provided their economies start showing some positive signs.

Japan’s PM Shinzo Abe called for a snap election this week, promising to delay the next expected sales tax rise after the recent one was seen to be a prime cause of the current surprise recession reading.

Meanwhile Europe, while looking economically ‘ ‘suss’, now has Greece out of a six-year recession and the Germans got a very good ZEW survey, which showed German analyst and investor sentiment rose from -3.6 to 11.5 in November - marking the first increase in almost a year. Meanwhile, the automotive sector (up 1.5%) was the best performing sector after data showed new car sales in Europe rose 6.2% in October compared with a year ago.

If Putin were not threatening economic stability with his Ukraine play, the European economy would be stronger, especially with oil price drops helping consumer buying power via the petrol pump. This is a big plus for the world economy and, ultimately, stocks.

And economies such as China and Japan can only be better off with falling energy prices, being powerhouses of manufacturing. As you can see, despite some current negativity, positivity could be a welcome visitor in 2015.
Is it too late to buy stocks? Or if you’re in stocks, should you pile in for more?

Time to take a chance
It’s not too late and I’m going to pile in. Of course, I wish you’d been reading me since late 2008 when I was advising to go long stocks in the depths of the GFC stock market crash. It’s always better to get in early but there’ll be a surge of latecomers to the market, who will react to upcoming good economic news.

I’m working off the following play sheet for stocks:
• 2015 will be good for stocks — no question.
• 2016 will be good again but I’ll be looking for worrying signs.
• A lot of experts I respect think the rises could be slower than many of us would like but it will mean that they’ll go on for longer. However, the market rises will be better than term deposits.
• I’ll use term deposits as a guide and when they start to appeal, I’ll start issuing warnings that the end could be nigh.

But that will be then. This is now. At the moment, I’m looking at the recent 3% fall in local stocks because of lower iron ore prices and thinking ‘when do I dive back in to get the benefit of the next spike in stocks ? Will I gamble and wait a little longer?’

I hate timing the market. It’s too hard. As I’m fully invested in stocks in my self managed super fund, apart from a new accumulated stash, I’m happy to play Warren Buffett and simply wait for the right time to take some value off the market, comforted by my belief that stocks will trend higher over 2015 anyway.

That’s my best guess. I wouldn’t be saying this if the majority of the experts I respect weren't thinking the same thing. And they are smart people, who mostly, and I underline mostly, get it right.

How long will this stop/start rally last? Simply, I say two years plus. Keep watching this space for any change of heart!

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