Eugene Profit, CEO of Profit Investment Management in Silver Spring, Maryland
The reason for the rally:
There was a lot of pent up demand because stocks had gone down so much, and I don’t think anyone thought that we would see a [more than] 60% rebound off the bottom. From my vantage point, you can’t really point to one thing or another [other] than just low interest rates and investors wanting to own stock for the potential of high returns. It developed its own momentum. A lot of the investors kind of looked at all of the data with more of a positive eye than more of a jaundiced eye.
Predictions for the coming year:
Looking at a little bit of the improvement in earnings calls that have come forward, the economy has gotten a little bit better. I think right now it looks like you may see [the market move] another 10-15% higher from here. That being said, in the short term there are a lot of reasons to think that maybe we came too far too fast and you might see some investors heading for the exits and taking a wait and see attitude. Investors are becoming a little bit leery and you’re starting to hear the commentary that this run up in stock prices isn’t supported across the board in terms of what you saw with corporate profits.
We still have some issues where the economy hasn’t completely rebounded–not even close. Unemployment is still way too high. Demand still hasn’t picked up in a lot of different areas. The fed has discussed pulling some liquidity out of the system and buying the debt instruments that have been used to support interest rates staying very low. A big rise in interest rates is going to choke off stock market gains and also impede economic growth. But this being an election year I don’t think you’re going to see any of that.
Advice to investors:
[Considering the low interest rates, the deficits, and that] unemployment is still very high, when you put all of that together it is all the more incredible that the markets had this big of a run since the March lows of last year. That is why you have to be in [the market]. It doesn’t work in any direct pattern where you can point and say if X happens Y will happen. You really do have to stick to your investment discipline and really buy in all markets and sell in all markets.