Clients, the media, and friends all ask the same simple question; when will the bear market end? It seems like such a simple, reasonable question, yet it is impossible to answer, except at some point in the future with the full benefit of hindsight. Right now, high oil prices, more write-downs by financial firms and a soft economy continue to depress stock prices and investor psyches, so we fully expect the Fed to leave policy unchanged. The market will find a bottom, likely sooner rather than later. Most of the losses on sub-prime have already been taken. New housing construction has already declined sharply. It seems likely that the bottom must be nearby.
Surging oil prices have been a huge problem for investors. As prices rise, they sap household income by raising inflation and weaken the economic outlook. The tax rebate added to consumer incomes, but the rise in oil prices offset entirely that benefit. Thus, the announcement by the Saudis that they will hike production by a few hundred thousand barrels daily to help lower prices could be a welcome relief.
Higher oil prices have pushed up the CPI, making inflation look worrisome. In fact, all of the increase in measured inflation is focused on food and energy. This isn't much consolation to consumers, who must buy food and energy. But the fact that all other price increases remain muted, as are wage rates, suggests that underlying inflation pressures remain contained. Thus, we are highly confident that Federal Reserve will leave policy unchanged at its meeting this week, even if they feel obligated to talk tough about containing inflation expectations. Raising interest rates to contain inflation would only compound the economys problems. The Fed won't do that.
This is also a week for new data on housing. Plenty of people are looking, but with prices still declining, they are cautious about buying. Affordability has improved very nicely. Once housing does bottom, there could be a lot of people who jump in to try to catch the bottom. So the upturn in housing could be sharp. Inventories have been eroding slowly, which is very good. More importantly, we need to see a rise in sales. Once sales start to improve, inventories will fall more sharply and force those waiting to make their purchases or risk missing the bottom. Download this article in PDF Format
About Advisors Capital Management, LLC
Advisors Capital Management, LLC (ACM) is a provider of managed portfolios and financial services for industry professionals and their clients. As investment strategist, Dr. Lieberman oversees the company's "Portfolio Partners" investment program. Additionally, he provides guidance to the ACM Wealth Coordinators who integrate the work of financial advisors, financial planning, tax, estate and portfolio management professionals to build, protect, and maintain clients' wealth. Although the information included in this report has been obtained from sources Advisors Capital Management, LLC believes to be reliable; we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
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