— by Mitchell Clark, B. Comm.
The stock market is going to keep on running, take a break sometime in the third quarter, then accelerate once again in the fourth quarter. Barring a major shock to the system, that’s how I see the equity market developing over the next six months.
It’s a peculiar time for capital markets now in that the price of oil is rallying with stocks. It wasn’t too long ago that the opposite was true. There is solid momentum in the oil market and I think $80.00 a barrel is a real possibility in the near term. The impact will be hardest on Main Street, but Wall Street is so enamored with the future that it doesn’t really care. All Wall Street wants is news that’s less bad than previous news.
A lot of speculative stocks are running hard right now; in particular, U.S.-listed Chinese stocks are winning the race. While volatile and highly speculative, a lot of these stocks have appreciated tremendously over the last two months. With most of these high-risk stocks commanding still reasonable valuations, I think there’s a lot more capital appreciation to come from this sector.
All of the current action is about betting on the future. If that future doesn’t develop as expected, the whole thing could come apart again. Investors were so shell-shocked when the market plunged last November and in March that there is a kind of bandwagon effect taking place right now. Of course, the S&P 500 still has almost 50% higher to go just to get where it was before the financial crisis. I suppose this makes the current gains kind of special, even though they aren’t.
It’s a traders’ market out there, with an emphasis on being long. I do think the market is going to retrench and, if it does so in a meaningful way, then we’ve got the makings of an attractive new entry point. A lot of investors still aren’t participating in the current action, because they’re too gun-shy to do so. This is unfortunate in that there’s good trading money being made right now and it’s in Chinese stocks and, to a lesser extent, gold stocks.
Oil has now become the barometer of the economic recovery as well as the inflation hedge for the immediate future. If oil runs to $100.00 a barrel once again, this will have a destabilizing effect on other capital markets and stocks could fall. Right now, Wall Street is fully in charge.