As the S&P 500 roared past resistance at 950 and the cries that recovery is here intensify, a friend of mine suggested a thought experiment for equity bulls and bears alike.
A thought experiment
In the area that you live (if you don’t live in the US, use the United States as the area under consideration), what is your forecast for the following a year from now?
- Tax rate, including state, local, property and sales taxes (Up, down or flat)
- Short term interest rates (Up, down or flat)
- Employment (Up, down or flat)
- Savings rate, remember the new frugality (Up, down or flat)
- Consumer confidence (Up, down or flat)
Do your answers add up to a bullish outlook for the economy? I didn’t think so.
My inner investor tells me to be very cautious at these levels. My inner trader tells me that with investor sentiment still leaning bearish, this rally may have a bit further to run in the short-term.
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Fear the bear, but respect the bull.