Don’t Be Suckered By Stock Market Rally In 2010

Photo by CoreBurn
Photo by CoreBurn

Global stock markets are poised to end on a high for the year after mounting an explosive recovery since March lows. The stock market rally, nearly ten months in duration, has surprised many naysayers with its longevity and magnitude. Nevertheless, after such a run-up, some consolidation is in order.

Rampant bullishness in the stock market disappeared over the past weeks and is likely to remain so till the end of the year. Stocks in various sectors (ranging from financial, property, construction, oil and energy) remain range-bound and though major indices are creeping up, they are being led by fewer counters and on low volume.

Bulls vs bears battle may be evenly split right now but according to most analysts, the stock market rally going into the new year is alive and kicking. Their forecasts of 1250-1300 are realistic enough with the 50-day moving average of 1,085 holding firm and could provide a launch pad for breakout in the coming weeks.

However, whether the S&P 500 can hold its ground till the end of 2010 is another question altogether. If you have gone through the internet and housing bust, you will know that analysts reports must be read with a healthy dose of skepticism. And when most of them agree, alarm bells should start ringing.

As a buy-and-hold investor, there are much to worry about, but you should enjoy the rosy picture of improving economic conditions being painted in the short term. Confidence in a robust economic growth has underpinned the optimism in stock markets.

US economic indicators are mixed but certainly more encouraging than in March. Expansion in the manufacturing sector is slowing down but the Federal Reserve’s industrial production report showed a month-over-month increase.

Jobless claims fell by 28,000 last week to 452,000 – the lowest level since Sept 2008 before the implosion of Lehman Brothers sent financial markets into a tailspin. Barack Obama is still not happy with the unemployment rate though and has urged banks to lend more aggressively to small businesses.

I am not sure if that is a good call because 133 banks have failed so far by acting against their better judgment during the boom years. It is actually refreshing to see banks exercising prudence and shoring up their balance sheets. But even if all the redtapes are removed, many businesses are still wary about expanding production and increasing payrolls when consumption is still anemic. Read more…

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