Markets & Finance

Stocks: No Time to Be Scared


Some market bloggers worry about what could trip up the market, while others advise investors to enjoy the gains

It took less than three months for the 30-stock Dow Jones industrial average to jump from 13,000 to 14,000, and for the most part it has quelled many big concerns. The mortgage mess and housing slowdown will only worsen (according to a veteran bond fund manager), interest rates are up, and the dollar is stumbling. And despite the recent tame core inflation numbers tracked by the government, prices for food, energy, and other essential stuff are up. (Note: Crude oil rose to $75.93 a barrel on July 19.)

Without those bugaboos, everything looks peachy, right? Experts say the mergers-and-acquisitions frenzy will continue, as there's plenty of money in private equity to go around. Earnings are beating forecasts, and that's what drives stock prices. Growth abroad is helping to boost sales and profits, while companies' increased stock buyback plans are boosting earnings per share.

Some leading market bloggers are optimistic and think it's silly to fight the tape. "While the bears continue to point out the same issues (i.e. higher energy prices, tepid consumer spending, interest rate fears, falling dollar, and housing market collapse, etc.), Wall Street isn't paying much attention," wrote Charles Kirk of The Kirk Report on July 15. "Their focus is on earnings season and expectations that the bar has been once again set low enough that good times are ahead. Let's hope they're right, but be prepared no matter what."

Evaluating the Threats

Seeking Alpha, an aggregator of market analysis, featured Sam Collins of ChangeWave predicting: "with the doomsayers still doomsaying and the shorts in a panic, it looks like the markets will continue to plow new, higher ground. After the shorts have been sufficiently beaten, you may want to take a few profits. But for now, you should join the rest of the Street at the beach but stay long stocks."

Still, Paul Hickey and Justin Walters at Bespoke's Think B.I.G. noted that there were "trigger happy sellers" immediately after the pipe explosion on New York City's east side on July 18.

Indeed, the 14,000 milestone gives a chance for worriers to wonder what will take the market off its pedestal. Barry Ritholtz at The Big Picture suspects that the markets have already discounted all the threats. "Rather, what is more likely to derail the markets is something not well known or highly expected: Consider a major rally in the dollar, 7% interest rate, collapse of a major trading partner, sudden loss of liquidity, famine in a developed nation, war with Iran, $100+ oil, political turmoil in the U.S.—something that is not currently on anyone's radar screen," Ritholtz wrote.

For Now, No Exit

Another worrier of the unknown is Roger Nusbaum at Random Roger's Big Picture. He pointed out on July 17 that Argentina's Merval stock market index was down almost 2% the day earlier amid news that its economy minister resigned because she could not explain why there was a satchel in her office that contained the equivalent of $64,000. "This serves as a reminder that there is still the potential for corruption to exist in popular, exotic investment destinations," he says, adding that "things that cannot be planned for will still come along every now and then which serves to increase volatility."

However, at this time, it's important to not make big bets to exit the market, says Nusbaum as he points to the latest weekly commentary from fund manager John Hussman.

Meanwhile, Douglas McIntyre at 24/7 Wall St. seeks to predict a timeframe for the next dip. "If the market is going to drop, it is likely to be between now and the end of earnings season, a month from now. And several large companies would probably have to put out disappointing numbers," McIntyre theorizes. "Despite rumors to the contrary, the market can't go up forever, and there are increasing signs that it could go down a lot."

McCormack is senior producer for BusinessWeek.com's Investing channel.

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