Bright Future Predicted Ahead for Stocks

The broader market’s pulled back somewhat after a solid run. Many market participants like for the stock market to take regular breaks because they don’t want investor enthusiasm to create a bubble.

A lot of individual investors I speak with are still not participating in the stock market like they used to. Many are gun-shy after the technology meltdown. A lot of people still own stocks, but only through mutual and pension funds. This is kind of a shame because over the last 18 months, there have been some truly spectacular investment opportunities in the equity market. Consider all the great China stocks we’ve been talking about.

With the main stock market indices still on an upward trend and only mediocre participation by individual investors in this market, I’m beginning to think that we’re going to see a strong rally later this year.

As I’ve written in this column before, a lot of statistical research shows that the third year in a presidential term is often very strong for equities. So, if we consider the statistical data, add in solid corporate earnings, and the potential for a quarter-point interest rate reduction towards the end of the year, we could get a strong performance from stocks. This would be particularly impressive considering a lot of Street analysts (including me) thought that this year was going to be a lackluster market for stocks due to the slowing economy.

I’ve got to keep reminding myself that the stock market exists to speculate about the future. It doesn’t seem to focus as much on the present. In a sense, today’s news is history. The stock market already knows that the economy and the real estate markets are slowing, so now it’s focusing on the future. What the stock market is telling me right now is that it thinks that future is going to be pretty bright.