Related topics: stocks, investments, oil, Dow, Kiplinger
Are civil war in Libya, the threat of turmoil elsewhere in the Middle East and soaring oil prices making you nervous about the stock market? Given how the market has been behaving recently -- selling off big time on days when oil jumps -- a bit of anxiety isn't totally unexpected.
But Jim Stack, one of the market's top prognosticators, says not to worry: The current bull market, which celebrated its second birthday in early March, still has legs.
Most forecasters do a lousy job of calling market turns. They often stay either bullish or bearish for years and years, regardless of what the stock market and the economy do. Even the best ones tend to lose their magic after making good calls for a few years.
In recent years, Stack, the president of InvesTech Research and the editor of the InvesTech Research Market Analyst newsletter, has put most of his competition to shame. He called the onset of both the bear market that started Oct. 10, 2007, and the bull market that began March 10, 2009. He has remained firmly bullish since the stock market hit bottom and currently recommends that his subscribers put 93% of their investment assets into stocks.
Even though the market has doubled in just two years, Stack remains upbeat. Why? Let's count the ways.
1. Oil prices haven't climbed enough to be worrisome.
The unrest in the Arab world has spooked investors and pushed the price of oil beyond $100 a barrel. Although higher oil prices are a headwind for the economy, Stack thinks they would have to double from current levels to derail the recovery. "Geopolitical events are very unnerving, but they seldom have a long-term effect on the U.S. economy or the stock market," he says.
2. The budget deficit won't hurt the stock market.
Stack is concerned about the federal debt: "We're headed the wrong way down a one-way street, and at some point we'll end up in a head-on collision if we don't turn around." But, he says, deficits were also sky high in the mid-1980s, and the economy and the markets did just fine. "Not a single recession in history has been caused by a soaring deficit," he says.
3. The economic recovery is robust.
Stack pays close attention to the Institute for Supply Management's survey of purchasing managers in both the service and manufacturing parts of the economy. It asks businesses about their purchasing plans and whether they're hiring more employees. The service sector is currently at a five-year high, and the manufacturing sector is close to a 25-year high.
That's not all. The Conference Board's Leading Economic Index is also rising. "Never in the past 50-plus years has the economy dipped into recession within 12 months after such a strong series of readings from the LEI," says Stack.
