You Tell Me Why Stocks Are Rising
Thursday, December 2nd, 2004
By Michael Lombardi, MBA for Profit Confidential
The Dow Jones Industrial Average jumped 162 points yesterday. And while this big-cap stock index is still down from its high of the year, and well down from its all time-high of about five years ago, the index has been experiencing a respectable rally since late October.
While I’m a true believer in the “trend is your friend,” just as most technical analysts are, why the sudden rally in the Dow? We were told yesterday it was because oil prices tumbled US$3.00 a barrel. But I have a feeling there is more to the story…
Let’s see. We have Ford Motor Co. reporting yesterday it will trim its first quarter 2005 production by 8% at plants in the U.S. and Canada after sales dropped 4% in the U.S. in November. General Motors Corp.’s November sales fell by 13% in the U.S., and GM said it will trim first quarter production by 7%.
Then we have Wal-Mart, the world’s biggest retailer responsible for 8% of all retail sales in the U.S., reporting weak sales. And the market knows it: Wal-Mart’s stock is down almost 10% from mid-November.
Finally, we have Bill Gross, manager of the largest bond fund in the U.S., with $76 billion in assets, telling us to buy German bonds, not American, because interest rates will rise in the U.S. as the American greenback continues its slide (I wonder if he read that first in Profit Confidential…?). The recent action in the bond market is obviously confirming what Gross predicts.
So why are big-cap stocks rallying again? A lower U.S. dollar is obviously a good thing for the American economy. It’s also the fastest way for the U.S. to exit from its massive current account deficit.
I doubt the market is being short-sighted in that a falling U.S. dollar will not eventually result in higher interest rates to attract foreigners back to our debt instruments. Don’t forget, the U.S. government is upside-down $1.6 billion each day! And that debt is mostly financed by foreigners.
In the very immediate term, and on a technical basis, this rally could continue. But in the short- to long-term fundamental term, I can’t see the market sustaining higher prices. Did anyone say, “sucker’s bear market rally” again?
Next Post: Some Surprising Gold HistoryPrevious Post: What the Bond Market Is Telling Us Now
Tags: stock market, U.S. dollar, Wal Mart
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
