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Stock Market Outlook
Weekly Stock Market Commentary
Every week our market analysis team discusses timely market insights. May 6, 2008 (Weekly Update)11:00 A.M. ET
DJIA 12,927.52 Al Goldman, Wachovia Securities Chief Market Strategist
People-Watching
We are in our 49th year as a full-time student of the stock market and can state unequivocally that not one moment has been boring. How is that possible when economic data can be dull, corporate reports are usually not thrilling and the stock market sometimes makes little headway in either direction? Folks, the thrill of being a stock market strategist is that you are dealing with fellow human beings who are driven by mood shifts, preset opinions and distinct personalities. The stock market is an amalgamation of mere mortals striving to make money but are controlled by their own personalities. Certainly fundamental factors are important, but it is how we mortals interpret and react to fundamentals that controls the direction of the stock market. Last week we discussed the emotions fear and greed. Another very human characteristic of most investors is very volatile mood shifts. These shifts can create both risk and reward opportunities short term. For two months, we have stated that in our opinion the stock market hit its bear market lows Jan. 22 and the bottoming process had begun. Market action has supported that opinion, but lately bottoming has turned into booming. Since the mid-March intraday lows to Friday's highs, the DJIA rose 11.7% and the S&P 500 13.2%. What happened to spark such a sharp rally in only six weeks? Human nature took over and caused a dramatic mood shift from fear to a degree of greed. Keep in mind, the stock market has historically risen approximately 10% a year including dividends. Yes, there have been some better-than-expected economic data and the Federal Reserve cut interest rates again and indicated that the end of the rate-cut cycle has probably been reached. Hallelujah, life is beautiful and all of our problems have gone away! We don't believe so. Economic news this past week continued to show weakness. Consumer confidence dropped again, and companies trimmed payrolls. First-quarter inflation-adjusted gross domestic product increased at a 0.6% annual rate, a bit better than consensus. However, most of this was due to an increase in unsold inventories. Rising inventories during a period of declining sales suggests that businesses could trim production further this year. We continue to believe the bear market is in the process of transitioning to a bull and that the probable recession will not be severe but of average size and length. But, it appears to us the stock market short term has gotten ahead of the economic and political environment. OK, it's all part of human nature to experience volatile mood shifts, and that's one of the things that keeps us from ever being bored. It's also a good idea not to get caught up in what appears to be excessive euphoria. Our advice is to remain optimistic about the stock market, but cool your jets a bit so you will have some buying power when emotions cool down.
ABOUT ALFRED GOLDMAN
Alfred E. Goldman, Chief Market Strategist at Wachovia Securities, has been in the business since 1960 as a securities and market analyst, writer, and lecturer on investments. A weekly market report, which discusses his outlook for financial markets as well as the economy, is available for clients and is currently published in approximately 40 newspapers.
Mr. Goldman has been quoted in many national media outlets including radio, television and print. He has been interviewed frequently on various radio programs (CBS, ABC, WSJ Radio News Network and National Public Radio) and quoted in The Wall Street Journal, New York Times, USA Today, Investor's Business Daily, Associated Press and Bloomberg Business News. In addition to several appearances on ABC's "World News Tonight," he has appeared on CNBC, CNN, Fox News Channel, Bloomberg TV and PBS' "Nightly Business Report." He has also appeared several times as a special guest on the former PBS program, "Louis Rukeyser's Wall Street." He is a member of the St. Louis Society of Security Analysts and the Market Technicians Association.
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