This is a bear market rally and the party is going to end soon. Sorry.
I’m not super bearish by any means, but rather realistic as to how far the stock market has come since the March 2009 low and even since last summer. In order for us to have a real bull market, we need a catalyst and I don’t see one as of yet. That catalyst has to be some major innovation or technological breakthrough (like doing business over the Internet) and it has to be sustainable.
Right now, the stock market is still playing catch-up. It’s still in recovery mode. U.S. equities are now trading on Chinese economic data. In fact, U.S. stock market sentiment is now based in part on Chinese monetary policy. Frankly, this isn’t good. It’s a sign that we’re still in a bear market, not a bull market.
The kind of catalyst that I’d like to see would be something like a major alternative energy breakthrough. The domestic economy needs global leadership again in some form of technological innovation that creates an entire new industry and, along with it, an entire new generation wealth. That’s what this economy needs in order to really fix the employment problem and that’s what the stock market needs in order to sustain a new bull market. Something like this, anyway.
Right now, stock prices are trading on hope and that’s hazardous. It’s hope for future economic growth, but there are so many structural problems in the economy (housing, employment, debt, deficits) that the current recovery seems to be solely due to the actions of the Fed, not individuals and entrepreneurs.
So, I continue to make the case that a stock market correction is imminent. Stock prices are stretched and the market can’t keep trading on China’s economic growth statistics.
We might not actually get a major selloff this year. The correction might take the form of a long-winded consolidation in share prices. We could get a long period of sideways mediocrity. Regardless, I think the winners will be those who own high-quality, high-dividend-paying stocks.
I’m very cautious on the stock market going forward. I like mining stocks the most for speculators and select Dow stocks for investors. I wouldn’t be a new buyer of equities at this time. The bear market rally is losing its steam.