“Freaked Out” Investors Missing Out on This Big Market Rally
Tuesday, May 19th, 2009
By Michael Lombardi, MBA for Profit Confidential
— by Michael Lombardi, CFP
The stock market took off like a bullet yesterday, with the Dow Jones Industrial Average up a big 234 points. So much for all those analysts who had given up on the stock market rally that started in mid-March of this year!
The Dow Jones is only a paltry 272 points from turning positive for 2009. The NASDAQ and the S&P 500 are already up for the year. Even commodity prices are moving, with crude oil up 38% for the year so far to $59.03 a barrel.
From the bear market low on March 9, 2009, to yesterday, the S&P 500 has rallied 36% — its biggest two-month surge since the early 1930s. As for individual investors, they are missing out on this big market rally. When I ask my broker friends if individual investors are buying stock, they say no. According to my network of high-net-worth stockbrokers, retail investors are still “freaked out” from the losses they took in 2008 and are too nervous to get back into stocks.
So, what’s fueling stock prices’ climb? While economists and naive market watchers would like us to believe that the economy is getting better, that’s not the real story. As I have written many times, stocks became very oversold on March 9, 2009, when they hit their multi-year low. Since that date, stocks have been coming back with a vengeance. Stocks are simply rebounding from severely oversold market conditions. Technically speaking, stocks are in a bear market rally.
Short sellers, who bet the stock market was going even lower, are getting squeezed and need to cover their short positions (which means they are buying stock). Mutual funds, not wanting the embarrassment of having the major market indices like the S&P 500 beat them this year, are slowly moving their cash back into the market, so as to not miss the boat on the rally.
Just how long will this rally last? I would expect the Dow Jones Industrial Average to recoup 50% of its losses. That would put the Dow Jones at 9,660, which means this rally has legs.
Ultimately, I do expect the rally to be short-lived and the bear market lows of March 9, 2009, to be re-tested. But in the meantime, why not buy some stock and enjoy the rally while it lasts?
Michael’s Personal Notes:
It’s a well-known fact that interest on the U.S. national debt is now running at $500 billion a year. How in the world will we be able to pay the interest on our debt, not even thinking about the principal? Like any business, there are two choices: cut expenses or increase revenue. For the U.S. government to cut expenses, it would need to make government smaller. But that would lead to unemployment, which the government does not want. So, the next choice is to increase revenue, which can only be achieved by a government by raising taxes. Great, that’s just what the economy needs, higher taxes. Maybe the government will not cut its expenses or raise taxes. In that scenario, watch for higher interest rates to attract foreigners to our bonds.
Where the Market Stands:
The Dow Jones Industrial Average is down three percent for the year. My opinion remains unchanged: The Dow Jones will soon turn positive for year. When the Dow Jones does turn positive for 2009, it will be headline news everywhere. That’s just what the big, bad bear wants: let stock market investors think everything is okay again, lure them back into the market, and take their hard-earned money away again. That is exactly what I expect to see happen.
What He Said:
“I’ve been writing to my readers for the past two years claiming the decline in the U.S. property market would not be the soft landing most analysts were expecting, rather a hard landing. My view remains unchanged. The U.S. housing bust will cut deeper and harder than most can realize today.” Michael Lombardi in PROFIT CONFIDENTIAL, June 13, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for worse times ahead.
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Tags: Bear Market Rally, Dow Jones Industrials, S&P 500, stock market, stock market rally
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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
