Have We Reached the Turning Point?

If you've been paying attention to the markets over the last six weeks, you've been witnessing history. The Dow Jones Industrial Average (the most commonly used metric for the stock market) has had its biggest six week rally since the 1930's. But, perhaps more important than just the point gains is the fact that the rally is on heavy volume - meaning there is a great deal of money flowing into the market. The reason why this is so important is because it indicates that investors who were previously on the sidelines after being burned by the downturn are starting to buy back in, and it's widely believed that without broad participation in a rally, it is unsustainable.

So Where Do We Go From Here?

So have we FINALLY reached a turning point in the market? Is the pain experienced by investors, hard working employees, and those planning for their retirement at an end? Well, you can ask 50 people and probably get as many answers. But here's my take:


I mentioned in a previous post that I won't be convinced of an economic turnaround until one of the fundamental causes for the recession begins showing signs of a rebound - housing prices. This single metric I feel is the key in an economic recovery. But, to get housing prices to bottom, the following needs to happen:

1. Housing Inventory needs to come down so the supply of homes that there is such a glut of can be eliminated
   
2. Foreclosure numbers need to come down. This is something that will eventually happen, but we just need to give it the time
3. Demand for Housing needs to Increase - This is basically already happening with the governments incentives. Right now it's value buyers that are getting into the market. Soon, it will be more broad based buying.

Stock Market vs. Economic Recovery

So you might ask, well the market is up 20% over the last few months, doesn't that already indicate recover? Well, yes, it does. But it indicates a stock market recovery, not an economic one. The stock market is a leading indicator - it tries to predict the direction of the economy. Right now it's predicting that the recovery is upcoming. But don't mistake it for already being here.

Should I Start Investing in the Stock Market Then?

If you ask me, yes! What I'm seeing in the market now is a reduction in panic...a sign that investors have found a price that they're comfortable with. Although I still think we'll see some volatility over the next few months, over the longer term, I definitely see some upside in the market. The value is out there, go get it!

So What Should I Buy?

Watch out for my next post. I'll get into that one in detail.



Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!

The Standard Disclaimer:

The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I’ve said above. This includes consulting with a financial advisor.