Have you studied the history of stocks in the U.S? Most people are aware of the crash in 1929 as well as the capital depreciation that occurred through 1932. Yet many may not be aware of the government stimulus in 1933 that helped the market soar 200% over the next four years. While the stimulus may have aided in pulling the markets higher in the absence of organic economic growth, stocks eventually tanked nearly 50% in a ferocious 1-year bear (3/10/1937-3/31/1938).

It is fair to say that the Federal Reserve’s zero percent rate policy coupled with trillions of electronically created dollars has had a hand in propping up the U.S. economy. Are you comfortable with the idea that they may transition to “normalizing” overnight lending rates? If so, why are the smallest company stocks in iShares Russell 2000 Microcap (IWC) collectively down more than 9% from their February highs? Why is IWC struggling below its 200-day trendline?

If the U.S. economic recovery is for real – if it no longer needs the benefit of extraordinary measures by the U.S. Federal Reserve – shouldn’t we see a steepening of the yield curve? Instead, long-term Treasury bonds have been highly coveted throughout 2014. Bond bulls clearly do not believe things will go well in the absence of Fed support. Bond believers could be wrong, of course. Yet what gives a U.S. stock bull the confidence to ignore the worrywarts who are winning with iShares 20+ Year Treasury (TLT)?

TLT 200

There are those who would say that U.S. stocks actually hit bear market percentage losses in 2011. Others can quibble about whether the S&P 500 or the Wilshire 5000 or another representative index fell 20% or more from its highs. However, it is certainly worth remembering that Europe’s recession, as well as fears of a financial collapse over sovereign debt woes, dragged down U.S. equities three years ago. Is it in any way disturbing that European monetary policy has failed to get the euro-zone economy expanding? Vanguard Europe (VGK) is back below its long-term moving average and it is 6% off its 52-week peak. Does the eroding faith in European stocks shake your faith in the U.S. stock market?

VGK 200

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