maverick
07-05-2008, 06:58 PM
The overall stock market continued to move higher, step by step, in the past week, despite some negative news. This confirms our view that for now, the market has bottomed – or, at least, is supported by a strong floor.
We saw particularly impressive support today. Despite a wave of negative headlines, which knocked the S&P 500 lower at the start of trading, stocks began clawing their way back in the afternoon.
When stocks shake off a triple whammy of bad news -- consumer confidence dropped to its lowest point in five years, home foreclosures more than doubled (in the first quarter, vs. the first quarter of 2007) and home prices dropped 12.7% year over year (February's figure, reported today) – it's a good sign that investors may be looking toward better times ahead rather than wallowing in today's bad news.
Are we among the bulls? Not exactly. Crude oil's continued advance is extremely worrisome, especially because we believe it reflects the reality that oil supply will be insufficient to keep up with demand in the coming years. Higher oil prices can't help but rein in the economic rebound that is the likely result of the Fed's aggressive policy of massive monetary stimulus. While the Fed is pushing on the gas pedal, higher commodity prices – especially oil -- are applying pressure to the brakes.
For that reason, we continue to predict a range-bound stock market. That means you'll need to be selective in search of lucrative investment opportunities. We continue to recommend overweighting energy and precious metals – and gold-mining stocks are especially attractive now, as they have taken a hit in the past two weeks, as gold has pulled back. In an era of rising inflation, gold is extremely likely to resume its bull market and push these share prices higher.
We're also keeping a close eye on bottom-fishing opportunities in the financial-services and housing sectors. History tells us that the best companies in down-and-out sectors tend to stage strong rallies that begin before those areas enter a clear recovery.
We saw particularly impressive support today. Despite a wave of negative headlines, which knocked the S&P 500 lower at the start of trading, stocks began clawing their way back in the afternoon.
When stocks shake off a triple whammy of bad news -- consumer confidence dropped to its lowest point in five years, home foreclosures more than doubled (in the first quarter, vs. the first quarter of 2007) and home prices dropped 12.7% year over year (February's figure, reported today) – it's a good sign that investors may be looking toward better times ahead rather than wallowing in today's bad news.
Are we among the bulls? Not exactly. Crude oil's continued advance is extremely worrisome, especially because we believe it reflects the reality that oil supply will be insufficient to keep up with demand in the coming years. Higher oil prices can't help but rein in the economic rebound that is the likely result of the Fed's aggressive policy of massive monetary stimulus. While the Fed is pushing on the gas pedal, higher commodity prices – especially oil -- are applying pressure to the brakes.
For that reason, we continue to predict a range-bound stock market. That means you'll need to be selective in search of lucrative investment opportunities. We continue to recommend overweighting energy and precious metals – and gold-mining stocks are especially attractive now, as they have taken a hit in the past two weeks, as gold has pulled back. In an era of rising inflation, gold is extremely likely to resume its bull market and push these share prices higher.
We're also keeping a close eye on bottom-fishing opportunities in the financial-services and housing sectors. History tells us that the best companies in down-and-out sectors tend to stage strong rallies that begin before those areas enter a clear recovery.