Posted: January 28, 2013
Though stocks took a breather Monday from their recent rally, there are reasons to think they'll continue their upward move in coming months. Money seems to be moving out of bonds and into stocks, corporate earnings are better than expected and economies overseas are getting back on their feet.
Almost as surely as the sun rises in the east, stories about the stock market hitting new highs are sure to be followed by declines in key indexes.
As Reuters writes, "the S&P 500 on Friday closed at its highest since December 10, 2007, and the Dow ended at its highest since October 31, 2007." Those dates are significant: Officially, the U.S. economy slipped into recession in December 2007 (it officially emerged from recession in June 2009). So it could now be said that the market was back to its pre-recession levels.
But in early trading today, as Bloomberg News reports, "U.S. stocks fell, following the longest rally for the Standard & Poor's 500 Index since 2004, after a report showed pending home sales declined."
It's something of a truism in the news media: once everyone notices something happening, it's time for things to reverse.
Still, according to The Financial Times there is reason to think the market will continue its rally:
"Money has started flowing back into equities, suggesting the past five years of outflows from mutual funds may finally end this year and affirming the sense that 2013 may be the start of the 'Great Rotation' out of bonds into stocks.
"Underlining that theme, corporate earnings, while not spectacular, are doing better than forecast. ... Stepping back, the macro picture is also brightening with the eurozone firmly in remission from its debt crisis. China is reporting stronger growth while Japan, the world's third-largest economy, finally appears serious about reversing decades of lackluster performance. ...
"So for a host of reasons, the performance of equities may have further room to run with the S&P's record peak from 2007 in sight."
The S&P 500 hit its all-time high of 1,565.15 on Oct. 9, 2007. At midday Monday, it was trading around 1,502. We'll watch to see how things finish today.
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