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Stimulating factors cumulatively make this possible according to Paulsen, like mortgage rates under 3.75% (5% last year), money growth at around 10% since Fall (was growing at only 5% a year ago), a dollar that is still off 10% from 2010 highs, falling prices at the pump on fuel, and the recent Case-Shiller 20-city Index (Mar – April period) which shows a 1.3% jump in home prices, breaking a seven-month down trend streak. Also noted was the inflation rate falling from 4% last Fall to 1.7%, which, alongside China being able to buck the down trend and interest rates being so low amid prime earnings multiples, gives credence to the argument that the S&P 500 could rally through March highs of 1,440 in the second half of the year. Paulsen said that the combination of low interest rates/ inflation and choice earnings multiples has never been seen before in the post-War era.
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July 2012