Why U.S. stocks will hit record highs in Q3

For months investors have been deciphering the mixed signals from the world's largest economy, while stocks have been climbing higher, approaching record-highs. Low interest rates, weak inflationary pressure and steady pace of economic expansion are often cited by bulls as main fundamental drivers behind the rally, even though investors acknowledge that valuations are getting stretched. While some geopolitical risks can hold further appreciation, there are several reasons why rally continued in the second quarter and why the outlook is still bullish. 

While the economy posted a surprising contraction in the first quarter, the short-term interest rates still remain close to zero. Long-term Treasury rates fell when they were expected to climb worldwide. Inflation continues to remain sluggish, even despite recent move towards 2% target. Despite the fact the Fed is tapering its quantitative easing, the monetary policy remain expansive, as central bank still purchases billions of assets onto its balance sheet. The federal deficit shrank to $400 billion from $1.4 trillion, and the tendency is still speaking in favour of further drop. Finally, the U.S. economy is not importing as much oil and energy as it was used to. In contrast, the economy is producing more due to growing energy self-sufficiency, meaning dollars do not flow abroad and investors allocate them in the United States.