Why is the Dow higher?

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garfangle_IHB

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<p>Today, the Dow closed up 174 points to 13,619. The S&P and Nasdaq are higher as well. Market bears have been predicting doom and gloom for the stock market ever since mid-summer yet after the nasty sell-off in August, the market rebounded and is basically within a trading range of 13K to 14K. If a recession brought on by the housing implosing and related financial mess is eminent, why hasn't it be priced in stock market. After all, during a recession corporate profits decline and take their share price down with it.</p>

<p>I think what is happening is a replay of what happened to the S&P 500 during the year 2000. Unlike the Nasdaq, the S&P didn't suffer a dramatic decline in March 2000 only to go lower. Instead, the S&P fell into a trading range of between 1400 and 1500 until October. As December came it fell farther to the 1350 marker. However, it never got back to 1400 as we went into the new year. It slowly drifted downward until it collapsed in Sept 2001, hitting a low of 965 on Sept 21. The S&P rebounded to close the year at 1150. Again, the new year brought further declines as the market tested and broke through its previous year low in July 2002. Ultimately, the market bottomed in October at just above 775.</p>

<p>I could see a similar scenario happening this time. The market would gyrate around this level for a while, but never reach its all time highs. Then, as the bad news became plainly evident, the market would sell-off, going lower and lower for at least a couple more years, though hit with occasional dead-cat bounces.</p>
 
The stock market moves to its own tune. Personally, I think the market will make new lows (below the lows of 2007) sometime in the next 6-12 months due to deteriorating corporate earnings with the upcoming recession. However, at some point, our currency will be devalued enough that overseas investors will perceive our stock market as a buying opportunity. In fact, based on my read of Bernanke's paper on Japan posted here in the forums, the currency devaluation and inflation is part of Bernanke's recipe for stimulating the economy. If the overseas capital flows in, the markets will rise even in a recessionary environment because valuations will be low relative to strong foreign currencies.





Basically, as the air comes out of the housing market, we will reinflate the stock market, but this time it will be with overseas capital instead of our own.
 
<p>No way.</p>

<p>Corporate balance sheets haven't looked this good in sixty years. PE ratios are reasonable. Big difference compared to 1998.</p>
 
The equities market may go up. Or it may go down. Or it may bounce around in a trading range. And I don't know why.
 
<em>"Corporate balance sheets haven't looked this good in sixty years."</em>





Prospects for future earnings haven't looked this bad in quite a while either.
 
Corporate profits looks good because the world is experiencing a economic boom. Intel gets 75% of it's revenues from overseas and a falling dollar will be advantageous for it's profits. Many large companies generate a lot of overseas revenues and you have to know which ones.
 
<p>IR:</p>

<p>In certain sectors, sure. Sears, Home Depot, and a few others are going to get crushed. Certain others are too cheap.</p>

<p>On whole I think stocks are oversold. Housing in SoCal, by comparision, is overbought by a much larger degree IMO.</p>
 
nonsense. the real reason for the mkt movement is espoused nightly by the business guy on your local news team.


"buyers swamped sellers!" on a down day, their response is "sellers outnumbered buyers!" suuure...
 
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