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A six-week rally in the stock market is creating new optimism among investors. Since its low on March 9, the Dow Jones Industrial Average has jumped 24%. Better-than-expected earnings reports from firms such as JPMorgan Chase & Co., Goldman Sachs Group, and Wells Fargo are helping to power the upswing.
The surge could be short-lived, however. BlackEnterprise.com asked a few market experts, and asked, “Are we witnessing a permanent market recovery?”
Randall R. Eley
President, Chief Investment Officer and Portfolio Manager
Edgar Lomax Co.
A: Yes, but …
Long-term, we may see bear and bull markets moving in and out more frequently than we are use to. There is still some question about whether the stock market needs to go down to historical bear value before going back up. If I were to see the Dow fall somewhere between 5500 and 6500, then I think we will be at a level from which a more sustainable rally could begin. We would have a market that was truly undervalued, where stocks need to be bought with money that the investor does not need to spend for another 10 years.
A good sign of a permanent market recovery is the fact that some of the large financial institutions have reported relatively good earnings the first two quarters. But these companies are not out of the woods yet because their balance sheets are overleveraged. But they are not likely to collapse and go out of business. America’s problem for many years has been leverage (debt). We are finally seeing a resolution of this with two of the three major segments of the American economic life: businesses and consumers. When we see the government start to pay down debt and when the federal budget going forward will not have a negative effect on the dollar’s value, we will have a long-term market recovery, as well as an economic recovery.
Where Eley sees opportunities for investors: corporate bonds and utilities, healthcare, and energy stocks