A Monumental Day for Stocks

by Michael Lombardi, CFP, MBA

On Friday, quietly, without much fanfare, with no major business newspaper picking the story up, the Dow Jones Industrial closed at a new high for 2009, bringing the world’s most widely followed index to a 52.5% advance from its low on March 9, 2009.

In broad terms, and talking on average, any stock you would have bought on March 9, 2009, is up 50% today. The year 2009 is proving to be a banner year for stocks so far, with some stocks doing exceptionally well, up in the hundreds of percentages.

As I have written in this column over the past year, once a stock market index takes the type of dive the Dow Jones Industrial Average took from October 2007 (when it hit a high of 14,164) to its 12-year low of 6,440 in March 2009, the market stages a rebound that recoups about half its loss. The exact number for the Dow Jones to recoup 50% of the difference between its 2007 high and 2009 low is 10,302. Please mark that number down — it is the next target for the market.

Friday, when the Dow Jones hit a new high for 2009, it was a monumental day for stocks in general, as the Dow Jones is now up a healthy 52.5% from its 2009 low, confirmation for me that a breakout by the Dow Jones over 10,000 is closer at hand. Stocks are now at their highest level since October 2008.

Just imagine the Dow Jones at over 10,000 again. There will be dancing on Wall Street, singing in the White House. The worst for the stocks and the economy will seem behind us. And, more
importantly, all those investors (and there are plenty of them) that missed the stock market’s advance this year will join the party and get back into stocks, pushing stocks even higher (and that’s when trouble will set in once more).

For now, my dear reader, all we can do is enjoy the stock market’s advance while it lasts. Hopefully this article’s prediction (of a 50% recoup of the market’s loss) has guided you well. I’ll do my best to guide you back out of the market when I believe the time is right. For now, enjoy the gains!

Michael’s Personal Notes:

While 2009 is shaping up to be a great year for the stock markets  (although we still have that traditionally difficult month of October to deal with), investors would have done well this year of they were invested in a variety of commodities as well. Crude oil is up 54% for the year, gold bullion is up about 13%, silver is up 47%, platinum is up 41% and the biggest winner of them all, copper, has gone up 100% this year — a double. The year 2009 has been a boom year for commodity stocks. As you know, I’m still bullish on gold and believe that there is quite a lot of life still left in the metal and in quality gold stocks.

Where the Market Stands:

Will this be the week the Dow Jones Industrial Average gets over that very important psychological 10,000 level? Well, we are only a diminishing 180 points away. This market has come a long way. From the fearful days of March 2009 when the Dow Jones traded at 6,440, the Dow is up 52.5%. For the year, the market is up 11%. Stocks have proven to be a good place for investors to be in 2009. While the advance is undoubtedly getting tired, the trend remains our friend. And for now that trend is still upward.

What He Said:

“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi, PROFIT CONFIDENTIAL, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 51% from the spring of 2007 through March 2009.