Stock Market: Bulls and Bears Alike Ponder Market Moves

According to Thomson Reuters, U.S. investors are sitting on the sidelines with an estimated $900 billion they yanked from the market when it plunged in the fall of 2008. Although some of that money has made its way back into the market, analysts are reluctant to be too optimistic. Many investment pros remain cautious, with some trading a bearish outlook for a tentatively bullish position. It’s tough for individual investors to make informed decisions when financial pundits can’t make up their minds. Even the experts’ interpretations of economic data differ: where one analyst sees improvement, another sees a temporary hiatus and no real recovery gained. Here are some of the issues and the key statistics that investment managers review to guide their investing attitudes. As always, these points are no substitute for professional advice from your investment and tax advisors.

Why hasn’t the recent rally sparked more enthusiasm?
Historically, stocks recover first — before the economy — and that’s when savvy investors can make money. However, timing a re-entry into the stock market to capitalize on the upward trend is the million-dollar question – and one that no one wants to get wrong. Some analysts fear the recent rally has run its course. They cite mixed economic signs and think it might be premature to declare that a recovery is under way. Many say the recent economic statistics suggest that caution is still necessary. Others note that the bear market is 19 months old and if it follows market patterns tracked since 1929, it is about due for an upswing.

Which indicators generate optimism? Why aren’t the naysayers convinced?
Housing sales are watched closely by many — and there are regional pockets where sales have increased. But some believe recent government action designed to help first-time buyers and keep interest rates low are temporarily propping up the housing sector. Employment figures are the key. The economy needs employed workers to spend money to keep companies profitable and stock prices solid. Unemployment is the highest it’s been since 1973, and factory utilization is hitting record lows.

What’s all this talk about inflation?
When it comes to investment analysts, there is rarely consensus about any major market mover. However, many experts agree that we might see inflation return. The government’s Public-Private Investment Program and a huge influx of capital from the Treasury have addressed earlier crises — but these bailouts come with a cost. Unless the recession lingers, we could see higher prices for most everything in the future. Many foreign governments have had to adapt similar bailout strategies, making the possibility of rising prices worldwide more likely.

Whatever an analyst’s stance on inflation and the economy, when it comes to predicting a market rebound, most will examine three basic economic indicators: jobs, home valuations and the availability of bank loans.