Some economists believe, that after the stock market crash in the year 2000, that this has taught investors, that basically all good things must come to an end. The problem, they say, lies in the number of asset classes; such as real estate, gold, hedge funds, stocks, crude oil, et cetera, has been mostly beneficial to the majority of investors both this year, and last year. Last year, for instance, Dow Jones reached it’s highest point after six years. So economists are wondering, if there is a break in this streak of great “luck” for investors, where will the first rift in the stock market occur?
Last year, many people observing the stock market believed that, although most investments were centered around the housing industry, –real estate, and mortgage related investments–, that there would be a major correction coming soon, towards the end of 2006. Obviously, that point was never reached last year, but that does not stop speculation about this coming “stock market crash.” Jeffrey Hirsch is an editor of the Stock Trader’s Almanac, and was reported to claim that, although Dow would peak somewhere around 11,500, it would soon plummet back down, to 8,500, or perhaps even lower. Hirsch also claimed that, “It could be a little more, depending on how ugly things get.”
The chief investment strategist at Charles Schwan, Liz Sonders, however, would not predict the crisis of a full-blown bear market, which is basically, a drop in major investment indexes of over twenty percent. However, she did reportedly say, “we may be in store for a midyear pullback that’s a little more severe than we’ve experienced in the last several years.” The pessimism does not stop there. According to the chief investment strategist at another agency, PNC Wealth Management, Jeffrey Kleintop, the gains made last year, would soon be returned, near the end of 2006, or even as late as the beginning of this year. At the time he made that statement, blue chip stocks were up by five percent, while stock shares in other companies were up by fourteen percent.
Not only economists, but investors are skeptical of how well the stock market is doing, even after the last bear market ended in October of 2002, and equities have even outperformed the residential real estate category, since later in that year. Since then, the category has advanced at nearly twenty percent, on an annual basis. So the question that the skeptical investors, and economists are asking amongst themselves, is basically, how long can that kind of growth last? The president of InvesTech Research, James Stack, noted last year that, bull market are generally peppered with small pullbacks, and minor corrections. The short term losses are a key factor in the how long a bull market is going to last. They are necessary, mainly, because the little losses and corrections pick off the investors who lack the “stuff” to make it in the stock market, which strengthens the resolve of more determined investors, and strengthens the stock market itself.
However, since the first quarter of the year 2003, it has been claimed, that there has been no pullback of over ten percent, which had many investors and economists worried last year. Robert Doll, the president of Merrill Lynch Investment Managers, was reported as saying, “That’s a long time, especially for an aging bull market like this,” and this kind of statement is basically encouraging the scare-mongering, and paranoid investors to spread paranoia throughout the active investors today. As a matter of fact, according to InvesTech, last year it was reported that this particular bull market was actually the fourth longest, in the history of stock market exchange.
The consequences, according to many, are that stocks are overdue for a “sell-off”, or a high correction, and a sudden plummet in value. That was back when stocks were entering the summer of an election year; the stock market also has its seasons, and phases just as well as everything else. The chief investment strategist, Sam Stovall, for Standard & Poors, last year studied the market’s performance over the various years of presidential cycles. According to his research, the second year of a presidential term, “the midterm election year”, is supposed to be, historically speaking, the worst seasonal time for the stock market. But how to determine whether or not shares are merely losing value because the company itself is losing value? S&P claims, that since 1945 that S&P 500 has only gained around four percent in that time of the second year of a presidential term, in comparison to the eighteen percent they earn during the third year of a term. Stovall also claims, that the second and third year of a presidential term is the absolute worst time for investors to be active in the stock market. Once again, according to historical evidence, stocks lose two percent in the second year of term, and then another two percent again in the third. Kleintop of PNC says he’s ” thinking that the old Wall Street saying ‘Sell in May and go away’ might make some sense,” for last year.
So the question itself, really lies in, if the stock market has been so powerful, and active in advancement last year, and it never reached that plummeting drop point that expert economists claimed it would reach later on in the year, shouldn’t the risk of being involved in active investing this year have been fairly high? However, the market rages on in the black, already in the early autumn of 2007, how soon, if any, will there be a fall? Although there has been a lot of concern over the real-estate issues that the recent boom of subprime mortgages are bringing about, the rest of the market assets seem to be doing well enough. The best advice for investors going into the market in the later months this year, is study up, research the companies they have shares in, and know where to expect a break.