Reap What We’ve Sowed

Not only are third quarter earnings coming in solid, inflation is moderating and therefore investor sentiment is improving. Frankly, I think the Federal Reserve has done a great job managing interest rates; engineering slower growth without putting us right into recession.

Some Street analysts are calling for a recession next year. These same analysts believe that this can be avoided if the Federal Reserve actually lowers interest rates in the first half of 2007. I think it is way too early to tell what the central bank might do next year. I know that they won’t take their collective eyes off inflation; however, my best guess right now is that the central bank will sit tight at current rates levels for quite some time.

So, with corporate earnings coming in great and inflation expectations lessening, we have the makings of a solid rally on Wall Street. The NASDAQ has a bit of catching up to do, but both the Dow Jones Industrial Average and the S&P 500 look great going forward.

The broader market’s been strong and I think it is reasonable to expect that it will continue to be strong going into 2007. Expect a considerable pullback in the near-future, but this will only be a technical correction. If the current trend in economic data holds, and there are no major geopolitical events, I think it will be smooth sailing into 2007.

I do have to say, however, that I’m not seeing the same amount of new stock market investment opportunities as I did over the summer. Many of the stocks that I wrote about just a few months ago are doing great and so there is no need to be concerned about finding a whole lot of new buying opportunities.

I’ve always contended that events in this life, whether good or bad, tend to occur in waves. This holds true in the investment business. Now is the time to reap what we’ve sowed earlier this year.