Pennsylvania Investment Observer

The Year End Rally

by Daniel J. Nestlerode

For those of you who have been waiting to buy stocks, the wait is over. The market is rallying and making new highs for the year in many of the major averages. Indeed, some averages are now significantly ahead of their highs made at the peak of the bubble year 2000. Clearly, the bull market is well established, having both avoided any significant terrorist activity in the United States and reelected a business friendly administration. Even the economy, after going through a soft spot, is continuing to grow and add jobs. Least you think we have clear sailing ahead, remember that we have to deal with the falling dollar, the trade deficit, the federal budget deficit and the social security issue. Interestingly, we don't seem to have any states, except for California, that are running budget deficits now, because the recovering economy has filled their coffers to overflowing. As Sir John Templeton has often stated, "There have never been a time when we did not have problems". However, problems are not reasons or excuses for not investing. Could something go wrong that might derail this rally in stock prices? Sure. Investing always involves the risk of the unexpected upsetting the apple cart. Yet every time that this has happened in the past, the stock market has righted itself and gone on to new highs. Of course, as the prospectuses declare, past performance is not a guarantee of future results. Yes, and history is the only way we have to look at life and anticipate what might happen next. Nothing in life is guaranteed.

I am going to crawl out on a limb here and make a projection about next year, 2005. Given the above caveat, it seems to me next year should be a very good year to be invested in common stocks, growth stock mutual funds and exchange traded funds (ETFs), the newest investment class on the clock. I say this in the face of the most recent issue of Barron's, a bearish weekly investment newspaper put out by Dow Jones and Company and the very bearish outlook from Yale Hirsch's Wall Street Almanac. Both widely read Wall Street publications are indicating that next year will be very difficult for the economy and for the stock market. Both publications are relying on their interpretation of history to anticipate problems on Wall Street and developing problems in the economy. Yet their interpretation of history must have the save caveat as my more optimistic notion about the economy and the stock market. Doomsayers are no more accurate or useful than optimists in anticipating the outlook for stocks in the coming year. Doomsayers, however, don't have to add the disclaimer about past performance not being a guarantee of future results. Doomsayers are, however, wrong most of the time.

In the moment of providing portfolio management for my clients in central Pennsylvania and across the United States, I am not foolish enough to believe my prognostication or any else's prognostications about the future of stock prices. As a portfolio manager, what I have to do is continually pay attention to the trends and ebbs and flows of the investment markets and take advantage of what the market is willing to give to us and avoid what it is trying to take away from us. I'm not always right, but paying continuous attention beats trying to guess the year ahead with accuracy. The truth is that no one knows what the markets will bring in the moments, weeks, months or years ahead. The trend has generally been up for over two hundred years, with some notable interruptions. Unfortunately, there is just no substitute for paying attention.

top of page | article archive

Home | About Nestlerode & Loy | Company News
Traditional Brokerage | Discount Brokerage | Investment Management
Investment Research |  Investment Articles

Privacy Policy

1-800-922-7492
Contact Nestlerode & Loy

©1997-2007 Nestlerode & Loy, Inc.