I have to say that I’m very nervous about the prospects for the stock market. One part of me is really bullish, while the other is very uneasy about the future for stock prices.
I’m bullish because the stock market has already pulled back significantly and quickly from its recent high. Corporate earnings are good, monetary policy is accommodative, and the credit crisis is mostly behind us.
I’m bearish because the economy is slowing, the housing market will take another couple of years to right itself, the dollar is dropping and, from a technical perspective, the broader market doesn’t look healthy.
The fact of the matter is that I don’t think any full-time Street analyst has a real defined view of where this stock market is headed. This is why I wrote previously that I feel we’re at some kind of crossroads.
If I had to put it concisely, I’d say my outlook for the broader market is uneasy hopefulness. I have to guess that there’s a 50% chance of more price weakness over the coming quarters, and a 50% chance of a new uptrend. This certainly makes for a difficult environment is which to speculate.
The good news is that there are great investment opportunities out there. I admit, however, that the number of attractive new investment opportunities in the equity market has diminished significantly over the last several months.
I’d be a buyer in this market, but I’m also perfectly content to be sitting on the sidelines.
The stock market needs a greater catalyst for a new market rally to develop than it does to resume a downtrend. My best guess is that this catalyst will be reassurance from the Federal Reserve. In any event, be prepared for anything to happen in this market. The crossroads is still before us.