Saturday, July 24, 2010

Current Market Outlook -- July 2010

Below is a chart of the Dow Jones Industrial Average.  Most stocks follow the direction of this average, making the Dow a proxy for what most stocks are doing in general.  Since March 2009, stocks have gone up over 30%.  The picture below puts the recent relatively small pullback in perspective.  Anytime you have a big run up the market will take a break for a few months to wait and make sure stock earnings are catching up to what their prices forecasted them to be.  That's what is happening now.  Overall, the market will go sideways for a few more months, maybe 3-12 months before resuming its up trend.

Don't believe any doom and gloom you hear about Europe, or Greece, or anything else.  The stock market would not have had a big run up in the past year and a half if the smart money didn't think the recovery would happen.  We are seeing now that corporate earnings and the stock market improve before the job market does.  Europe is not likely to have a huge impact on the U.S. economy.  The world economy follows the U.S. economy, not the other way around.  Also, we are seeing signs the economy is improving, although Mr. Bernanke is still talking very cautiously.  Keep in mind that Wall Street axiom that "the market climbs a wall of worry."  Don't let the worry prevent you from getting into the market.  All the money that the federal government spent is slowly filtering throughout the economy.