Focus on Earnings, Not QE3

Last week, I opined that investing becomes more challenging amid frothy market conditions. Stock prices are on the upswing and most investors are challenged when it comes to selling positions. Rising markets have a tendency to make most investors believe they are smarter than the market and that overconfidence often leads to poor decision making – namely, holding out to sell positions at the top.

The Federal Reserve added another layer of difficulty last week by announcing another round of stimulative monetary policy. As expected, the market cheered and the S&P 500 was off to the races. As of Friday, the S&P stood a level not seen since 2007. But before complacency kicks in for the rest of year, remember that stock prices in the long run respond to earnings growth. For what it's worth, it's likely that stock prices will remain elevated; not only does QE3 provide a price floor but, unfortunately, it also provides the market with a belief that at any sign economic weakness, the Fed will step up....335 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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