Analysts around the world warns it’s expensive, stock exchanges are overvalued, leveraged funds are selling off their assets and become bears. Everyone is waiting for falls and interest rates rise is just few steps away.

The current situation on the market in the United States – in the long term it does not look too good. The economic situation is tragic, the unemployment rate mangled and the new jobs are under standard.

However, in the near term, especially after another rate hike in the United States we expect further increases in the index SP500 – only speculative, no one talks about the long-term purchases. Interest rates will be raised in December, the market expects such a move by the Federal Reserve for 72 percent.

Source: Bloomberg

Below are 3 reasons which in our opinion will cause further gain of the index SP500.

1.Inflation SP500 and FED interest rates

Source: Bloomberg

Interest rates set by the Federal Reserve are below the inflation rate of 10-year bonds of the United States. In the previous analysis we gave a few reasons why we can not look at the interest rates on inflation.

The Federal Reserve should raise interest rates at least four times by 25 basis points to realize a downward scenario.

2. Interbank lending interest rates

Source: Bloomberg

On the interbank market interest rates on the US dollar goes up all the time, but you can not see anything alarming. Long-term interest-bearing loans are higher than short-term. Only the disappearance of liquidity and lack of confidence in the interbank market caused the short-term loans were higher than long-term.

The upper graph shows interest rates on interbank loans from 1 to 12 months. At the bottom of the illustrated spread of 1M and 12M loans. If short-term loans are more expensive than long-term, it means trouble in the banking sector with liquidity. At the present moment the difference is more than 100 basis points.

3.Falling spread of bonds with a high credit rating and junk bonds


The difference between the bonds with the highest rating, and those junk all the time falls. Investors are not afraid to lend funds to companies that in case of problems may go bankrupt.

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