The Bulls and Bears each make a solid case for where the market is going any why. On the bearish side, the housing market has undoubtedly slowed down. This usually creeps its way into consumer spending and overall confidence levels about household wealth. How would you feel if your house was worth $100,000 less this year than it was last? Would you hold off on that Caribbean cruise? Perhaps.
The Bears also point to oil prices. How can the stock market rally if filling up a gas tank costs the better part of $100? The average person doesn’t earn that much money that gas can cost a family $3,000/year and not be a concern. More importantly, when publicly traded companies report earnings, will high oil prices not factor into lower sales?
How about the falling value of the dollar? Behind the problems of the dollar lies the huge and growing US trade deficit, and the large Federal budget deficit. A falling dollar also means more expensive imports, which ultimately leads to inflation. Will US consumers start buying more US goods if imports become more expensive? Unlikely. What’s more realistic is that the Fed will raise rates to counter the inflation, which could lead to a sell-off in the equity markets.
Some think a weak housing market could counter the effects of inflation and lead the Fed to keeping rates unchanged, or perhaps even lowering them.
What are the Bulls saying with all of these ominous signs above? Well, if you ask me, I’ll offer a somewhat obscure answer: It’s a lot easier painting a negative picture of the economy by pondering our domestic output and talking about all the inherent risks which will slow it down. The intangibles, however, tell us a different story. Innovations such as the iPhone, satellite radio, online classrooms, and G-mail demonstrate the unique talent and potential present here in the United States. Statistics regarding innovations on the Web are staggering, helping to create a global landscape, anchored by the United States. A lot of this stuff goes under the radar and perhaps it shouldn’t.
More traditional bullish factors include the recent sustained period of low interest rates, and incredible amounts of merger and acquisition activity. We’re in a private equity “boom” which gives the market lots to be confident about.
Where do I stand in all this? I’m cautiously optimistic, as I have been for years now. I think plenty of opportunities exist in the market if you understand risk and how to create a smart portfolio. I don’t know that I’ll ever be a perpetual “Bear.” It’s just not in my personality. The US stock market has been doing great lately, and I’m not one to argue with a rally.