Rally

investmenttool.com Cover Story

One can only diagnose a real market turning rally after its already happened. Initially sparked by Dell Computer announcing blandly that they would probably make sharply lowered profit estimates. It has since turned into the best two weeks of the NASDAQ in a very long time. The signs are very clear, this market has turned itself around. Here are the factors driving the market upward.

Interest Rates

Interest rates dropped again last week, and the prime lending rate has falling 2% or nearly 25% this year. This will lower the cost of borrowing on corporate profit and loss statements. It makes investing outside the stock market less attractive. There is a lot of money ready to come into this market.

Though historically high, valuation is much more realistic than it was a year ago. The profitable corporations, like IBM and Oracle are still making money in this economy. Their valuation levels look very attractive right now.

Economic growth is going to pick up, primarily because Alan Greenspan is going to keep lowering rates until it starts growing again. The U.S. Economy is going to drive world economic growth when it picks up an spending on technology will pick up.

The equities markets tend to overshoot the impact of the conditions they consider. They went way to high during the Internet frenzy and went way too low earlier this year. The economy has not collapsed, profits have not stopped rolling in and conditions are just not as bad as the pessimists feared.

There is significant risk ahead. There is another earnings warning season coming in June and the economy is not growing fast. Energy prices are rising and summer electricity shortages could put a chokehold on the economy.

Still, I can't remember feeling this optimistic.

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Shmuel Protter
investmenttool.com

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