Will Investors Start Heading For The Hills?

After five years of fantastic gains, the major North American market indexes are starting to creak and groan.

The Dow Jones Industrial Average is now red for the year. The NASDAQ momentarily dipped below 5,000 before closing on Tuesday at 5,013.87.

Sure, the markets are long overdue for a rest, and perhaps even a correction. Deutsche Bank, as a matter of fact, came out yesterday and said that they believe that the S+P 500 may drop 5-9% this summer, thanks, in large part, to the increased likelihood of an interest rate increase from the Federal Reserve.

After last Friday's stronger than expected jobs number, some are now predicting that the Federal Reserve will raise interest rates in September. It's not a matter of if the Federal Reserve will raise rates - it is just a matter of when.

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The fiscal stimulus has done wonders for the stock market over the past five years and the portfolios of many investors have benefited as a result.

The question at this point becomes - how quick will investors be to pull the trigger on an exit from the market if the DJIA ends up closing negative for the year?

Many American households saw their portfolios get absolutely savaged in 2008 and 2009, leading to the changing of many retirement plans.

Five years later, these same households are that much closer to retirement. Will the "Baby Boomers" stay in the market if things start to go south, or will they take their gains and ride off into the sunset?

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The last five years have been fairly straightforward - the massive amounts of fiscal stimulus injected into the system by the Federal Reserve has done wonders to buoy stock market valuations.

The next five years, however, will be much more interesting as the country deals with higher interest rates and a stronger dollar.

Filed under: General Knowledge