Monday, May 25, 2009

My Updated Stock Market Forecast

When the media is full of both “bulls and bears,” what does the intelligent investor do in times of economic uncertainty? As of 5/26/09, the S&P 500 Index was at 908. I believe there’s at least a 50% chance that the S&P 500 may go as high as 1,100 in the next twelve months. If this happens, you can expect many ups and downs along the path of getting there.
Right now is an excellent time for long-term investors to purchase high-quality large-cap U.S. equities still selling at bargain prices. In the near to midterm, however, I do not have a great deal of conviction about the direction of the S&P; I wouldn't be surprised if the S&P hits 1,100 and place the odds at less than a 25% chance that we will retest the lows reached in March. If the S&P moves above 1,000, I will be inclined to lighten equity weightings because of the uncertain nature of the current rally.
What May Drive Stocks Higher From Here?
The quotes below are from
"There's a lot of pent-up demand. Buyers come right back in [when there's a pullback]," says Marc Pado, U.S. market strategist Cantor Fitzgerald. "Institutions want this market lower because in the last two weeks they have raised cash and lagged putting it to work."
Mutual fund managers are typically rated on their relative performance, and at a certain point, holding all that cash starts to weigh them down, says Bill Stone, chief investment strategist at PNC Wealth Management.
The pressure is mounting, because a lot of these funds "got smacked on the way down, then missed the way up," says Stone.
Jeffrey Saut, chief investment strategist at Raymond James, suggests there's about $9 trillion in cash and cash-like investments, and about $4.1 trillion in fixed income. "So there's a little more than $13 trillion, which believe it or not is comparable to total household debt."
But, of course, it's just impossible to figure out how much will go in, says Saut. "There were people who got so burned, they sold at the lows, and they're not going to go back for years. It seems there's nowhere to go but up, but sometimes that sidelined cash stays on the sideline."
What May Happen As We Move Into 2012-2013?
A recent study by the Leuthold Group indicates there are several independent methods that seem to triangulate on the years 2012 and 2013 as candidates for another significant stock market low—and perhaps the final low of the secular bear market begun in 2000. In the meantime, they suggest that we are in a cyclical bull market phase right now.

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