Why should you care what
Stack bases his forecasts on analysis of the economy and business conditions, as well as on technical indicators--that is, the action of the stock market itself.
He musters strong arguments to bolster his current bullish stance. The U.S. economy is growing steadily--yet that growth hasn't sparked a pickup in either inflation or interest rates. The Conference Board's Consumer Confidence Index is hitting new post-recession highs practically every month, as is its Index of Leading Economic Indicators. So are the
That's not all. Stack can hardly contain his enthusiasm over the recent plunge in oil prices, which have dropped 25% since late June to
If oil is the economy's lubricant, low long-term interest rates are its propellant. Much of the economy, both for businesses and individuals, runs on borrowed money. The less expensive that money is, the faster the economy can expand, all other things being equal. Stack expects cheap oil and cheap money to power corporations to higher profits next year--higher than analysts are currently forecasting.
More than economic fundamentals put Stack in the bullish camp. His technical indicators are mostly flashing a buy signal, too.
The InvesTech Bellwether Index, an index of economically sensitive stocks, is surging to record highs. Stack's Negative Leadership Composite, which measures the number of stocks posting new 52-week highs compared with those hitting new lows, fell during the October sell-off, but is now recovering nicely.
Stack, however, is nothing if not flexible. He remains a nervous bull. "Bull markets do not last forever," he says. He thinks we're in the latter third of the bull market, and that sometime in the next two or three years the economy will fall into recession. Typically, bear markets begin three to six months before recessions start.
What's more, Stack expects the coming bear market to be a doozy. That's because every bear market save one since 1950 has taken back at least half of the gains of the preceding bull market. He thinks the next bear market will subtract 35% or more from the major stock indexes. But that's tomorrow's worry. For now, the bull market looks strong and healthy.