Apr

24

The stock Market in 2007

Posted by cameron

April 24, 2007 |

This is my take on the seemingly unpredictable stock market; it’s gyrations and what to make of it. Most professionals in the industry will say we are in the late stage of this particular market cycle. This is when bear markets traditionally start. This has been the time of recessions, but not always. The market does cycle but the low point is not always negative. In the mid nineties the late stage economy and stock market both grew but at a relatively subdued rate, to be followed by a bull surge and the now famous tech-bubble. The point is that not all late stages are recessionary.

If the market stays above recessionary levels this will be the so-called “soft landing”. If it falls further then we will enter a recession, the economy will contract and the stock market will head lower. No analyst can tell until it is too late. The only way of knowing is to look back at the charts. History is 20:20 on that.

So investors have moved into gambling on the market. They look at pieces of news and, depending on their leaning, will either see it as favorable or unfavorable to the soft landing scenario. If the Federal Reserve say they may raise interest rates the bears will see that as negative to the market and sell, guessing that the Fed will force us into a recession. On the other hand, bulls will take that as a sign of economic strength since the Fed wouldn’t destroy the economy in its fight against inflation. So they buy shares. The outcome of all this is a tug-of-war that is based on trying to guess which landing it is. So far this year any selling by the bears has been cancelled out pretty quickly by the bulls in “buy low mode”. Since the market hit another high today I can only surmise there are more gambling on the soft landing than a recession.

My personal beliefs in market direction are irrelevant because I take the long view. These short-term undulations in the market are of no serious consequence. I’m not into gambling so I have to chuckle at it all. I have only two beliefs:

  1. The stock market will cycle and any low is followed by highs.
  2. It always comes back to earnings and value in a company.

Knee jerking on every piece of news is silly. Market timing is silly. “Long term” and “earnings” are the only words that matter.


Comments

Name (required)

Email (required)

Website

Speak your mind

<< Post Navigation >>

« « Retirement House Plan Sites | Green Around The World » »