The Forces of Stability and Chaos, From David Kelly, chief market strategist, JPMorgan Funds
In theory, it’s quite simple: The value of stocks and bonds should be determined by profits and interest rates. These in turn depend upon relatively slow-moving variables such as economic growth, inflation, productivity, wage growth and the general attitude of policy makers. By these benchmarks, the outlook for U.S. and global stocks should be very bright and, while bond yields might rise, balanced investors should be able to look forward to a few years of comfort and gain in a general global economic recovery. However, in the hyper-fast, hyper-connected and hyper-sensitive markets of 2010, investors have had little assurance that slow-improving fundamentals would yield financial gains or even be sustained in the face of financial convulsions. These opposing forces were fully on display last week and may renew their conflict this week. However, as of this morning, the forces of stability should have an edge. Last night, European Union governments, acting in concert with the ECB, international central banks and the IMF, took some dramatic steps to calm the sovereign debt crisis.
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