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Thursday, 20-Nov-2008 00:21:58 MST

The Week ahead

Turnaround

In my opinion, the bottom of this market is behind us. After a week of better than expected earnings news, a surprise rate cut that caused a rising market to rocket; you might ask "what's next?"

The Federal Reserve has made it clear, they will do what is needed to restart economic growth. Falling interest rates have made interest bearing investments less attractive than stocks. There is a ton of cash on the sidelines from people who sold stock during the past year.

So, I have switched my forward view from frightened to bullish but risky.

The risk is that in a slow growth economy more earnings warnings are possible. Earnings are the fuel that drives the market and they have not been good. The warnings season is however behind us, and soon the April earnings season will also be over.

The market is looking for signs that the economy is starting to grow again. This will help corporate profits.


Another factor that will help earnings is that the cost of borrowing money has dropped by a third this year. This frees more funds for capital investment and will show itself on corporate bottom lines in the next 6-12 months.

So, the market might stumble, but the overall direction is clear. When the Federal Reserve lowers rates, short selling is a bad bed. The watchword of this market is simple. Don't fight the Fed.



To see our past issues, click here.
Last weeks column.

For our front page, click here.

Shmuel Protter
investmenttool.com


Resources: The Wall Street Journal (Registration Required)

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Last Update:Tuesday, 17-Oct-2006 02:04:55 MST
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