The market is due for a correction or at the least a prolonged consolidation phase. Yesterday's rally is reinforcing the theme.
The lesson from the 1960s ... is not to get too excited when the Fed is finished this time around, but to wait until leading indicators begin to reaccelerate before assuming an aggressive position in equities again.
Short of a significant decline in oil prices, we do not foresee a likely catalyst that would spur the market significantly higher at this time. The equity market will likely remain in a transition phase, which could see the strong equity market uptrend of 2003 evolve into a slight downtrend in early 2005.
I just don't think the post-Fed environment is going to be what people think it will be. Things will look a lot more like the 1960s.
This is one seasonal investing method that holds some water, given its robust track record. The summer months are a good time for remaining bulls to think about pulling in the reins.
The difference between the '80s and '90s and now is that inflation and interest rates are already low.
A simple way to avoid companies with great prospects but little upside price potential would be to avoid those with extremely favorable mean ratings. In that vein, investors focusing on those companies with unfavorable mean ratings and, of course, prospects for a turn in business fundamentals can sometimes be rewarded quite handsomely.
The post-Fed performance of the S&P 500 could prove to be the biggest surprise of 2006.
During the past few years, earnings have done far better than what economic growth alone would have suggested. Interestingly, we have found that the wider-than-expected profit margin, courtesy of surprisingly benign cost pressures, has helped turn good earnings performance into outstanding earnings performance in recent years.