Those who have been paying attention recently have noticed that this has been one of the longest “bull” markets (or elevated market values) that we have enjoyed in recent history. While there are some people who think that this cannot possibly continue, the reality is that the current bull market run is likely to continue. This means that those who are looking for superb investment opportunities may want to strike while the iron is hot. As the value of stocks, bonds, and other investments continues to rise, those who are in the market stand to enjoy large returns on their investments. One of the reasons why is lower interest rates. Financial guru Jason Rager predicts that these lower interest rates are going to send the market even higher. That will lead to better exit opportunities holders of all asset classes.
For those who might not know, lower interest rates traditionally lead to a rising market. When the Federal Open Market Committee, also known as the FOMC, sets the federal funds rate, this has an impact on the entire US economy. This means the stock market is impacted by this as well. This is one of the many reasons why people watch the federal funds rate, or the “national” interest rate, very closely. While this rate is used to control inflation, it also has an impact on the stock market. When the federal reserve lowers interest rates, the cost of borrowing money drops. This means that more people are going to take out loans they can use to start a business, grow a business, or purchase goods and services. This means that more money is being pumped into the economy, sending the stock market higher.
On the other hand, when the interest rates increase, this means the cost of doing business is higher. It becomes more expensive for local banks to borrow money from the federal reserve and they start to charge their customers more interest in return. This causes people to think twice before borrowing money or taking out a loan from the bank. In effect, the “pool” of money available to build businesses and purchase goods and services begins to shrink. Money is more expensive to obtain and the stock market begins to drop. There are banks located in other countries that operate in the same manner.
Right now, the interest rates are still at historic lows. This means that people are continuing to borrow money from the bank, knowing that it will be easier to generate a solid return on their investment. With more money in the US economy, the stock market is likely to rise as well. This is going to lead to higher market valuations. It will be interesting to see just how long this bull market continues. Once the inevitable bust comes, likely new legislation is likely to be passed and the regulatory environment will be tightened. Anyone who is looking to generate a significant return on their investment should consider jumping into the stock market now. This bull market isn’t going to last forever and people need to take advantage of the current situation.