Our industry analysts from Bank Credit Analysts, and the top down research provided by Ned Davis Research, is concluding that we are about to come out of the recession in mid-Summer, much earlier than I’d anticipated. I hope they are right. I’d much rather be wrong, and have markets rally, than be right about my more pressimistic forecast.
We still have a long way to go before this year closes out.
The leading economic indicators have risen, three months in a row. It appears that the Chinese stimulus program is working, even if the U.S. package isn’t exactly setting the world on fire. Furthermore, it is possible that U.S. stimulus spending is still coming down the pike, and it is massive. Machinery stocks seem to be benefiting from an increase in global economic activity. Car showrooms aren’t going to remain empty much longer.
Wells Fargo’s chief strategist, Jim Paulsen, remains much more optimistic than most and believes that the low value of the U.S. dollar will lead to a dramatic increase in U.S. exports. Clearly, most industries with business end-markets are holding up better than industries that sell directly to consumers.
I still think we’re just muddling through. I continue to worry about the impact of higher interest rates on future business activity. I still believe that caution is the key word.
In the meantime, we have enjoyed the rebound in commodities and more rational pricing in the high yield bond market. We have emphasized technology companies, and the degree to which tech stocks outperformed most other sectors during the first half of the year has been striking.
I hope I’m wrong. I hope that today’s market trends remain in place for the rest of the year. If so, we’ll end up with a great year. At the end of the day, though, I just don’t think it’s going to be that….easy.
Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.
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