It will take a bit of good fortune, but I think the S&P 500 Index can achieve 1,500 this year. We’ll likely get a correction or some sort of prolonged consolidation in the not-too-distant future and, barring any unforeseen shocks to the system, the stock market should reaccelerate due to continued growth in corporate earnings.

We are seeing the market somewhat topping out at this time. Investors are greeting good earnings from brand-name companies with a little apathy. Of course, stock prices did already go up in anticipation for solid first-quarter numbers, so this is no surprise. The numbers from Merck & Co. Inc. (NYSE/MRK) and Caterpillar Inc. (NYSE/CAT) were excellent.

There are some headwinds that stocks will have to face this year, and the big one is inflation, which is happening all over the world. A little price inflation is good. A lot of price inflation is bad. Most definitely, the devaluation of the U.S. dollar to prop up the economy is a double-edged sword. While this does have direct stimulus benefits, it also contributes to inflation, as most global commodities like oil and gold are priced in U.S. dollars, thereby aiding the inflation contagion. While there’s no prospect for interest-rate hikes at this time, they are inevitable.

The current economic situation seems destined to produce a period of low, but steady growth over the next several years. While this isn’t what the market is used to, low and steady actually makes it easier for monetary policy to change in a manner that’s more helpful. When we get strong periods of growth, the Federal Reserve wants to ramp up interest rates. What we don’t need now is anything drastic that could kill off the current economic recovery.

The housing market continues to be a drag on the economy and investing in real estate isn’t likely to pay off anytime soon. There remains too much inventory for housing prices to accelerate in a meaningful way. The real estate market is still trying to balance itself out after its bubble burst.

The month of May has a tendency to be kind of slow for equity prices. With most companies reporting their first-quarter numbers in April, it isn’t surprising that stock market trading action may be lackluster this month.

I want to repeat a market view that I’ve had for a while. I do see the stock market able to tick higher later this year. I think it’s reasonable to expect a correction, perhaps soon. I also don’t think this is a market where investors need to be doing much that’s new. There’s no big rush to be investing in gold for example, even though the spot price of gold keeps hitting new records. The stock market has already done extremely well over the last eight months. Everything is due for a break.

During the technology euphoria in late 1999 and early 2000, I recall a friend of mine had taken out a massive loan against the value of his home and bet on several high-risk micro-cap stocks. I remember his position surging from $100,000 to nearly two million dollars in less than two months. He asked me my investment advice on what to do. I said take profits. He did not listen and sat on the two stocks all the way back to well below his initial investment!

This is a true but sad story that I have used as an example on the need of portfolio diversification. The reality is that it doesn’t matter if you are investing in real estate, the stock market, art, or antique cars. The best way to protect your wealth is not to put all your eggs into one basket. This is obvious, but I’m surprised how few investors actually follow this.

One of the keys to successful investing is longevity. The longer you are in the business of investing in the stock market, the more experience you gain and the more opportunities cross your path.

When you are buying a stock, you are investing in a business. The people that run that business are entrepreneurs, looking to generate a return on the capital their company invests. The people who provide this capital are investors—people like you. You invest your capital because you are looking to generate a decent return on your investment.

Naturally, if you are going to invest your money in a business, you want to have some say in how it is run, in order to protect your investment. In the stock market, however, you don’t have that luxury.

You can vote for company management or some specific initiatives, but you can’t actually participate in the company’s daily decision-making. So, this means that you do not have control over a company’s ability to allocate your capital. Therefore, the only option available to you as an individual investor in the stock market is to spread your investment capital around. You need to divide your own investment risk among a number of companies, because you can’t control the actions of any one of these entrepreneurs.

The phrase used to describe this spreading of investment risk is portfolio management.

Portfolio management is a process that encompasses the creation, monitoring, and adjustment of your investments. The process never stops, because you are continually buying and selling new stocks. Taking a “portfolio approach” to your stock market investments helps you stay in the game longer and improve your returns.

Taking a portfolio approach to your stock market holdings means diversifying the industries in which you invest. Not only do you need to spread your investment capital around a number of different stocks, but you also need to diversify your holdings across different industries. Owning a basket of stocks in one market sector increases your investment risk substantially, so you have to spread your money around different sectors if you want to protect your wealth over the long term.

Trust me. My friend was greedy, not diversified, and suffered major losses. I don’t want you to be like him.

If you are a buyer, the current housing market continues to afford good opportunities, whether as a principal residence or as an investment property. If you are looking for beachfront housing in Florida, there may not be a better time to buy than now. Then again, the housing market remains in a flux driven by high unemployment and record foreclosures.

It’s true that the housing market is much improved from a year ago, but there continue to be problems. The S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States continues to show declines.

The NAHB Housing Market Index, an indication of the sentiment of builders, was a muted 16 in February. To tell you how bad this is, any reading below 50 suggest negative sentiment amongst builders. It has not been since April 2006 that the NAHB index has been above 50.

I remain somewhat bearish on the housing market in 2011 and into 2012. If you are a buyer, great; but, sellers may continue to face lower prices.

The key Housing Starts for January were stronger than expected for the second straight month, coming in at an annualized 596,000, well above the estimate of 540,000. Yet homebuilders continue to be apprehensive, as the key Building Permits for January fell 10.4% sequentially and were short of estimates at an annualized 562,000, short of the estimate of 575,000.

What the housing data point to is an improving yet still sluggish housing sector.

Add in the record foreclosures and weak home prices and there are still reasons to be concerned.

The housing market is improving and is better than where it stood a year ago, but I feel there will continue to be barriers as we move ahead.

Consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume a mortgage and not worry about losing their jobs and missing payments. And, until we see this, I really question how confident homebuyers will be.

When people struggle financially, one of the first things to go is the home, along with cars. At this time, there are estimated to be about five million homeowners behind on at least two payments, according to data from foreclosure tracker RealtyTrac Inc. What is more worrying is that an estimated 1.2 million homes will be foreclosed this year, above the one million in 2010.

Besides the loss of jobs, homeowners are also just walking away from their homes in many cases when the value of the home is below the outstanding mortgage.

The reality is that no one wants negative home equity and, sometimes, instead of waiting for home prices to rally, it may be just as easy to walk away, and this has been what’s happening.

And, if housing continues to struggle, it will likely impact the economic renewal.

When I first started PROFIT CONFIDENTIAL back in 2001, we were sending it to about 1,000 people; friends and customers of Lombardi Publishing. I was writing the issues alone. Today, we get as many as 2,000 people daily signing up to get PROFIT CONFIDENTIAL; it has gone “viral,” as they say.

We never started out with the goal of becoming an Internet company like Amazon or Google. We’re just a group of stock market analysts and economists that like writing and sharing our ideas about the markets and the economy.

Writing a financial daily e-letter is not easy. I wake at 4:30 AM EST each day we have an editorial issue. George and Mitchell work late into the night getting their morning articles ready. Wendy needs to edit each issue first thing in the morning. Joey needs to insure the issues get out on a timely basis.

I love sitting down to write PROFIT CONFIDENTIAL each morning, because I believe we present a contrarian view on the markets, investments and the economy that our readers can truly benefit from.

Some of my friends ask how can you think of so many different things to write about, almost every morning, 10 years running? My answer it that, with this global economy, there is so much happening at any given time, there actually isn’t enough time in the day to write about everything and to present our views on all of it.

As you know, we offset the cost of producing PROFIT CONFIDENTIAL with advertisements for financial newsletters and services produced by Lombardi Publishing, a company I started back in 1986. With an MBA in International Finance (a CFP from years ago), and almost 30 years of investing experience, I’m often asked to write financial plans for individuals. I’ve been offered as much as $50,000 for a financial plan, but I always decline, because I simply don’t have time. I do not want to take away from what we do here at PROFIT CONFIDENTIAL.

On these pages, we’ve had some great calls over the past decade. I would narrow it down to about five major forecasts that made a difference:

1. Turning bullish on gold bullion in 2002;
2. Telling our readers to get out of the real estate market in 2005;
3. Being among the very first to predict a full-blown recession
   (we did that in 2007);
4. Turning bullish on stocks in March of 2009;
5. Dumping long-term bonds in the late summer of 2010.

We are blessed to have a stable of fine editors and analysts that have made these spectacular predictions and forecasts. We are as equally blessed to have so many readers flocking to PROFIT CONFIDENTIAL daily, because, without them, our predictions and forecasts (which are usually contrarian) would go unheard.

We thank you for taking the time to read the issues and we hope our ideas, predictions and forecasts are making an honest difference for you in how you invest your money and how you adapt to today’s quickly changing financial environment.

Where the Market Stands; Where it’s Headed:

The market has been up in seven of the last eight trading sessions. After being down most of yesterday, the market popped in the last hour of trading to give us a gain for the day. Someone wants this market to move higher.

Every day I wake up and ask: Is the rally tired? Is it over? After all, stocks are up about 80% since March of 2009. The year 2011 has been a great year to be invested in stocks so far. So what do I do? I just do what the market tells me. As long as the stock charts show rising prices, as long as the Federal Reserve keeps money easy: I don’t fight the trend; I don’t fight the Fed.

Until the market tells me differently, stocks are still a good place to be today. Short- to long-term, it’s a different story. I’m not bullish for the remainder of 2011. For me to really turn bullish on stocks for the entire 2011 year, long-term interest rates would have to come down, our deficit would have to be down to under a trillion a year, stock market advisors would have to turn bearish on stocks, and the Fed would need to raise the Federal Funds rate to one percent. I don’t see any of those things happening anytime soon.

The Dow Jones Industrial Average opens this morning up 5.7% for 2011.

What He Said:

“Overbuilt, over-speculated, over-financed and overdone. This is the Florida real estate market right now. For those looking to buy for personal use or investment, hold off! The best deals are yet to come. I continue with my prediction that the hard landing in the U.S. housing market, which is now affecting lenders, will have significant negative effects on the U.S. economy.” Michael Lombardi in PROFIT CONFIDENTIAL, April 3, 2007. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

“If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure—these are the bank stocks I wouldn’t own.” Michael Lombardi in PROFIT CONFIDENTIAL, May 2, 2007. From May 2007 to November 2008, the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%.