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John Simons

The Stock Market Rally Lives On. But Can It Continue?

  • March 9, 2011 marks the second anniversary of the stock market rally. The Dow Jones Industrial Average has gained more than 86% since it closed at 6,547.05 on March 9, 2009, the crisis low-point. BLACK ENTERPRISE asked nine market-watching experts whether the rally can continue for another year. Here’s what they had to say.

  • Douglas Coe
  • Managing partner and chief investment strategist
  • Investment Banking/ Capital Markets, Moody Reid Financial Advisors
  • Kansas City, MO
  • YES.
  • “We’ve just entered into the second phase of one of the strongest bull markets in U.S. history. Interest rates will remain low. Stocks still remain the dominant asset class of choice for wise investors who are seeking to keep pace with inflation. Again, U.S. stocks still are undervalued.”

  • Jacquette Timmons
  • President, CEO
  • Sterling Investment Management
  • New York, NY
    YES.
  • “It is important to remember that any market rally or boom is a reflection of either our collective fear or optimism. So yes, the current rally will continue provided the United States government doesn’t shut down or become engaged in another war; oil prices stabilize; and private industry job growth continues unabated. But even if unforeseen political or economic factors interrupt the current market rally, there’s every reason your “personal market rally” can continue.
  • How? By making a commitment to five practices frequently abandoned at the first sign of market duress: a) Choose your investment selections based on best available information, not your feelings, b) Continue to invest in your taxable and tax-deferred portfolios using the discipline of dollar-cost-averaging, c) Match your investment strategy and products to your short- and long-term goals, d) Rebalance to take advantage of the inherent benefit of buying low and selling high, and e) Create stop-gap procedures to help you resist the temptation to let your feelings rather than your goals and what you want your money to do for you–drive your financial choices.

  • Arnett Waters, Principal
  • A.L. Waters Capital, LLC
  • Braintree, MA
  • NO.
  • “Oil will trade above $150 per barrel. Gold will trade above $1,600 an ounce. Unrest in Middle East will spread. Unrest will take hold in China too. U.S. corporate earnings will decline.”

  • Larry Seruma
  • Managing Principal
  • Nile Capital Management LLC
  • New York, NY
  • YES.
  • “We at Nile Capital believe that the market rally is going to continue over the next year. In the next twelve months we do not see the Federal Reserve raising rates, which means the cost of capital will remain low, and earnings will continue to surprise to the upside. Unemployment will also continue to fall, which will increase consumption and encourage growth. In fact, we have already seen capital flows returning from abroad as investors’ allocation to US markets continues to increase. The biggest risk in our view remains a less accommodative stance by the Fed, however we believe that such a policy is unlikely in the short term.”

  • Joe A. Gilbert, CFA, portfolio manager,
    Integrity Asset Management, LLC
  • Cleveland, OH
  • YES.
  • “I’m still positive on the market at current valuations. Earnings will grow because of growing sales. Admittedly, most of the ‘easy’ money has already been made and the returns from here will be more modest but this does not portend to a declining stock market. We are in a maturing bull market, which requires investors to be more selective. But opportunities remain. The outcomes from geopolitical events are more binary but oil at $105 is untenable hence I
    believe that once oil corrects the market will go higher. Economic expansions typically last seven years and we are only in the second year of this expansion. The Federal Reserve is continuing to provide liquidity and the Obama administration has introduced more simulative policies (i.e. payroll tax cuts, accelerated depreciation). Additionally, the NFIB Small Business index has increased and the unemployment rate has just started to recede. Businesses have started to hire again and reinvest in capital equipment after a period of under-investment. There is continued positive business momentum and the economy is still operating substantially below potential output levels. Bull markets historically die on optimism and grow on skepticism and there is plenty of skepticism surrounding this market now.”

  • Lee Baker, CFP
  • Apex Financial Services
  • Tucker, GA
  • YES.
  • “I expect the market rally to continue over the next year for a number of reasons. First, the Federal Reserve will continue to do everything in its power to create fertile ground for the market to continue its upward trend. In addition, we will see dollars that had been sitting on the sideline last year continue getting into the game. Currently the bond market is an unappealing place to put new money due to inflation fears. As a result that leaves stocks as the most likely landing place for those dollars. The United States’ position in the global economy isn’t what it used to be but all paths still lead to (or perhaps through) America. The continuing global economic expansion will ultimately benefit domestic markets. One cautionary note: sustained upheaval in the oil producing regions could eventually put the brakes on consumer spending. This would be a result of higher prices at the pump and the grocery store.”

  • J. Michael Salley
  • Registered Principal
  • Salley Wealth Advisors Group, LLC
  • Summerville, SC
  • YES.
  • “There are several important factors that point to higher stock market valuations:
  • A. We are fully entrenched in an economic recovery in the US, gone are the sentiments and opinions about the possibility of a double-dip recession. As this recovery advances, albeit slowly, the stock market will continue to forecast this improving growth of the economy.B. The health of corporate America is very strong and will continue to improve. The deleveraging and strengthening of balance sheets has had a dramatic positive impact upon corporate earnings. The majority of companies continue to report earnings that are above Wall Street’s estimates. At the end of the day, it is earnings, or the lack thereof that mostly influences stock prices. I believe this trend of improving earnings will continue.C. Consumer confidence and sentiment continues to improve. In fact, a week ago I read a news article that pointed out that this improvement was more evident in the African American community, based on several surveys that were taken D. Lastly, there are trillions of dollars still sitting on the sidelines in a near zero interest rate environment, because of the fear and anxiety generated by this latest severe economic downturn. These assets will be forced to move into equities as the picture continues to brighten.”

  • J. Dennis Jean-Jacques
  • Author
  • Five Keys to Value Investing
  • NO.
  • “The market rally cannot continue at the current pace over the next year. Increased government involvement in the general market makes this a very delicate time period, thereby making a continued stock market rally more unlikely. Needless to say, it is hard to ascertain whether the
    level of froth in the market is born from sustained economic growth or artificial stimuli. Indeed, the government has always played a role in the markets such as changing tax policies or lowering interest rates at the first sign of unwelcome economic news. Such interventions often “prop up” equity markets until sustained economic growth is restored. It can be tricky for investors to navigate as the economy becomes less dependent on artificial injections because this period produces very difficult, and often volatile, stock market environments. The time at which such transformation begins and how long the purgatory will last are the unknowns; but after TARP, tax relief, mortgage relief, QE1, and QE2, a transition must happen at this stage of the government’s prolonged intervention–which will most likely have a negative impact on the market. This is why investors should be extremely cautious during this time as this market rally is expected to take a much needed pause.”

  • Ed Fulbright, CEO
  • Fulbright Financial Consulting
  • Durham, NC
  • YES.
  • I have five reasons to be positive: The economy is improving; banks are starting to lend–but slowly; more people are becoming optimistic and are starting to spend; CEOs and CFOs are starting to loosen the purse strings and are launching big projects; and commercial building projects are starting up.
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