What’s Going on with the Stock Market?

Current stock market action troubles me. The gains made in April and May are quickly eroding, as the market is focused on inflation worries more than anything. The way the S&P 500 Index is looking, the last two months look like they were a bear market rally. In Street lingo, the Index looks like it was in a dead cat bounce over the last few months.

I have to say that I don’t have any defined sense as to where the broader stock market is going to go over the near term. A lot of people on the Street feel this way. When this happens, you can bet that investment risk is high. Anything can happen in a market like this, so you had better be prepared for all eventualities.

The S&P 500 Index is down from its recent peak last October, but considering all that’s happened in the mortgage and housing markets, it has held up extremely well. What I think it illustrates is just how strong large-cap companies have been in terms of their earnings and their stock market performance in recent years.

The stock market is always good at worrying about the future. Fortunately, events change relatively quickly in the U.S. marketplace and, because the market’s already worrying about everything it can (the economy, real estate, inflation, interest rates), I’m optimistic about the future.

It seems to me that the stock market has put the subprime credit crunch behind it. The market knows that it’s going to be a slow recovery in housing prices and that the economy will be sluggish over the next year or so. All we have left to get over is inflation, and this may be the mother of all economic problems.

Even so, the corporate sector is for the most part very healthy. Companies are running lean operations. While raw material costs are rising, companies are now able to pass these costs to customers. They weren’t able to do that just a few years ago.

We’ll see how things develop. As always, there are all kinds of stocks in the marketplace right now that are generating a lot of wealth for stockholders.