Read it Here: This Month the Best October in Years for Stocks

“Profit Confidential” Column, by Michael Lombardi, CFP, MBA

Could it be true?

While all the naysayers were telling us to watch out for the dreaded months of September and October, because they are seasonally the worst stock market months of the year, the market snuck one past them, as I predicted.

If we look at the raw numbers, the Dow Jones Industrial Average opens this morning about 500 points higher than it started October, or up about 5.2% for the month. And we are only halfway through October! Yes, we’re only half way through October and this market is showing no sign of dissipating yet (see “Where the Market Stands” below).

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On October 2, 2009, my lead article in PROFIT CONFIDENTIAL was entitled, “Welcome to the Worst Month of the Year for Stocks…Maybe?” In that column, I predicted how the market would give us the opposite of what is expected of it and deliver a strong October. My forecast was based upon the negativity that abounded at the beginning of October.

While the decline in the value of the U.S. dollar will have long-term negative ramifications for the economy, in the short term, the stock market loves a weaker U.S. dollar. Why? Because most major American corporations benefit by having the U.S. dollar valued lower against other major currencies. The decline in the value of our dollar, in the immediate term, has added additional fuel to the stock market.

When will this rally in the confines of an overall bear market come to an end? That is the million-dollar question. But why waste our time thinking about the inevitable when we can be enjoying the profits this market continues to deliver?

Yes, interest rates will eventually go back up. And when the market senses that’s about to happen, stocks will go back down. But, for now, the market continues in rally mode in spite of whatever the naysayer can come up with. We have another two trading weeks left in October. I may be going out on a limb here, but I’m thinking that the market will make them rewarding weeks.

Michael’s Personal Notes:

I’d like to warn gold investors that a correction in gold bullion prices, after such a strong run-up, would be no surprise at this point. While I’m still very bullish on gold, I’m conscious of the fact that not a single investment goes either straight up or straight down.

My expectation of a correction in the gold pits comes from the positive articles that have been coming out in the media on gold bullion. All of a sudden, the late-comers to the gold bull market have become experts. There is a very positive news story on gold this morning on Bloomberg and, as a contrarian, when I see such positive stories surfacing, I wonder if a natural correction in prices can be far off.

Where the Market Stands:

This is a stock market that doesn’t want to go down. On Friday, Bank of America reported a bigger-than-expected quarterly loss of $2.2 billion. General Electric Co. saw its quarterly earnings drop 44% from the same period last year. Poorer-than-expected results from these major bellwether companies show just how fragile and weak the economy remains. But the stock market didn’t give it much thought. The Dow Jones Industrial Average fell only 67 point on “bad news” Friday. This tells me that the underlining strength of the market’s advance is still very strong. The Dow Jones starts today 13.9% than it began 2009.

What He Said:

“I personally expect the next couple of years to be terrible for .S. housing sales, foreclosures and the construction market. These events will dampen the U.S economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S. economy later this year.” Michael Lombardi, in PROFIT CONFIDENTIAL, August 23, 2007. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.