— by Mitchell Clark, B. Comm.
The positive tone on Wall Street continues and it really is counter to what’s happening in the real world economy. Yet, the stock market never pretended to be about the real world, only the perception of what the future might look like.
I’m beginning to revise my outlook for stocks given the broader market’s lack of retrenchment in recent weeks. I’m starting to think that there isn’t a catalyst necessary for stocks to tick higher. What the market does need is a catalyst to go lower and, so far, it hasn’t found one.
Companies like General Electric, with large international operations in a number of industries, are not showing the traditional leadership that they once did. Technology stocks are the real stars of the show now, as evidenced by the strong performance of the NASDAQ. Even Microsoft, which is about a mature a business as you can get in the technology field, is showing strong leadership on the stock market. Pull up a one-year chart on Microsoft and you’ll see a tremendous performance since March.
The leadership being provided by technology stocks is certainly a good sign for the broader market, even with companies like Caterpillar, Wal-Mart and General Electric stuck in the doldrums. The market has been moving ahead— and will continue to — without these international benchmarks.
Those investors who had the guts to take on new positions in March and April have most likely made a lot of money. Even if you bought the index you’d be up tremendously. With the main stock market averages still well below their pre credit crunch crash, you can easily make the case that there is a lot more room for further gains, even with some natural retrenchments.
With the positive tone among investors, there is also an increasing consensus about inflation in the future and traders are making their bets right now. While gold has been trading between $900.00 and $1,000 an ounce in recent months, it is oil that traders are using to bet on.
So, we have an investing marketplace that’s got a positive tone to it, betting on increased economic activity that has yet to actually reveal itself. To call it a bear market rally implies that there’s going to be some big pullback in stock prices eventually. To me, the situation is just too unclear to predict. What’s evident right now is that investors look like they want to keep on making new bets. The near-term trend is up.