be diversified when investing in stock market

Did the stock market rally to far to fast since QE2?

Stocks rallied yesterday , ISM services rendered a blowout number. Core business investments are on the rise and still kicking, and retail came in above analyst expectations. However, big name companies are jacking up prices because of high commodity prices. And Geo-political Fear could cripple profit margin and tax consumers because of uncertainty regarding the blocking of the Suez Canal.

Yesterday stocks raised mainly because Ben Bernanke basically declared that outsize commodities won’t cause higher inflation. However, experts predict US economy is heading towards a commodity bulges, corporations are lifting prices left and rights. Can this be an indication of stock market problems amid all this euphoria?

The Question is : did the stock market rally to far since QE2?
If we take a look back, six months ago at the beginning of August 2010, headlines all over was talking about the fear of double dip, everyone feared the stock market, investors were extremely bearish, and suddenly, Ben Bernanke comes out with this 600 billion dollars stimulus plan, and the market immediately turned into a bullish market with stock still rallying as we head towards the first 2011 earnings reports.

Stock has moved up too far too fast and moving into the next Quarters, investors should definitely be concerned. The question is the market healthy because the economy is healthy or because Ben Bernanke has been making this market healthy. Anticipation of inflation may drive down the multiple earnings of today’s market, and if 10 year Treasury bonds go beyond 4 percent, the stock market might get into serious trouble. However, some expert thinks that the multiples and inflation fears are all ready priced into the market, and the stocks will not be affected by it.

I believe we had it good, maybe a little to good since August of 2010, and the market will adjust itself. So be prudent, don’t put all your eggs in the same basket, be diversified and always remember, when the market is continuously on the rise, sooner, or later it goes the other way, so you should expect some turnaround. Therefore, you should keep some liquidity in order to take advantage when it happens.