Understanding The Past To Predict The Future
One year ago the NASDAQ was testing 3000, down from the high of 5200 in March. This drop correctly reflected the "irrational exuberance" priced into stock values.
The market retested 4200 twice during the summer of 2000 as stocks trended higher. The nastiest Bear in the history of NASDAQ sunk its teeth into the wallets of investors from September of 2000 into early April of 2001 leaving many portfolios decimated.
Stocks prices were destroyed in the 4th quarter of last year, but news of layoffs, earnings disappointments and lack of visibility did not surface until January. Downgrades were coming in hordes from Wall Street analysts after stocks had already gotten clobbered. The market knew the business climate was terrible long before investors heard it from Wall Street and the financial media.
Stocks are now beginning to trend higher in the absence of corporate performance, which is puzzling to many investors. We are experiencing the inverse of last year's bear. The market is a forward looking mechanism, and today's prices are moving based on the market's perception of where companies will be in six months.
Experienced money managers know the aggressive interest rate cuts from the FED will eventually lead to an upturn in corporate performance. Excess supplies of technology from the overfunded tech sector are being absorbed, and once we arrive at increasing demand for decreasing inventory companies will rebound.
The market won't go straight up. There will be some pullbacks and hiccups along the way. We have arrived at the point where pullbacks will be met with buyers, and you should now put your sidelined capital to work. Just as analysts were behind the curve in the Bear Market, they are behind now. Don't wait for them to come out with buy recommendations after stocks have already appreciated 40%. The BULL is back, and the next economic expansion could be the most prolific in history.
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