Long and Slow Or Are We Ready to Go?

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

We’re now at a time when companies have to start delivering on the stock market’s recent enthusiasm. So far, the market’s done what it has always done — and that is to buy in anticipation and sell on news.

Hope for the future remains the central theme for the current trading action in stocks. If third-quarter numbers hold up relatively well, we could be in for a lot more upside. If not, then I don’t think we’ll get a huge selloff, but perhaps the period of consolidation that I’ve always contended the market really needs.

If the current mirroring effect in the Dow Jones Industrial Average (pull up a three-year chart and you’ll see this uncanny trend in recent history) plays out, this would suggest that the Dow could experience another 1,000 to the upside. This would be quite an amazing performance if it were to happen.

Like I say, the numbers will eventually have to be there or this stock market will be in trouble. It will be important to watch what both the banking and retail sectors say in their third-quarter numbers.

If Wall Street reports good numbers, then institutional investors will be happy. If retailers show numbers that aren’t as bad as the Street expects, then investors will conclude that the recession is over in consumer spending.

Technology will be another key area to watch, because large-cap technology companies also are a good barometer for what’s happening in the rest of the economy. Businesses don’t spend money on information technology when sales are slow.

The recent trading action in gold is quite telling. Spot price strength is based on speculation about future inflation, but it’s also about an improving global economy — particularly in Asia. Gold does have the potential to make a real run over the next several months. Whatever happens, it will be tied to a weaker U.S. dollar compared to other global currencies.

This is an especially important earnings season for the equity market in that investors really do need to see if the economy has turned around. Or rather, to what degree it’s getting better.

My gut feel is that the recovery will be long and slow and that the stock market is actually a bit ahead of itself. I am bullish on the future, but I’m realistic about how long it will take to get there.