H.S. Dent Publishing: Stock Market Rally Ahead

The stock market rally has begun. As the economy continues to recover, investors are once again seeking profits on Wall Street. According to the September issue of the H.S. Dent Forecast newsletter, recent stock market gains have been lackluster as the major indices -- NASDAQ, Dow Jones and Standard & Poor's -- have climbed steadily after hitting bottom on Friday the 13th.

So far, the stock market rally has been weak due to anemic stock volume on NASDAQ and the New York Stock Exchange. However, in spite of concerns regarding semiconductor and technology stocks, NASDAQ is starting to show the first signs of a rally. The Dow and S&P are also positioned to climb higher as the economy strengthens.

"The Weekly Leading Index appears to have bottomed, and should move back into a normal growth rate of four to six percent," said Harry S. Dent, Jr., president and founder of the H.S. Dent Foundation. "This is good news. Since the index has about an eight month lead time, we should see strong economic growth and a significant rally in the equity markets during the second quarter 2005."

"Current trends continue to point to late 2004 as the last great buying opportunity before The Next Great Bubble Boom occurs, which is discussed in our new book due out later this month," said Dent.

Oil prices continue to concern investors. "Expectations of oil prices are all over the map," said Dent. "However, prices should fall as long as supplies remain fairly steady." Why? Because, the price of oil appears to be at the upper end of the price range and demand is starting to decline for a number of reasons. The U.S. driving season comes to a close this month, as children return to school. In addition, the Strategic Petroleum Reserve (SPR) of the United States has been building domestic oil reserves. Projections indicate the SPR should be full within 6 months. In addition, the incredible growth of China has been fueling oil consumption for the past five years. Yet, earlier this summer the Chinese government tightened credit restrictions which are expected to slow the rate of growth in demand for oil in China. Considering these factors, and barring any acts of terrorism or supply interruption, prices should trend down.

As we have predicted for some time, interest rates appear to be moderating – despite the fact that the Federal Reserve has been raising rates at a "measured pace." After a run up to almost 4.8 percent early in 2004, the 10-year Treasury bond has settled back to around 4.2 percent -- a lower rate than these same bonds were trading at the beginning of the year. This phenomenon is the bond market signaling inflation is stable, so interest rates will remain low according to Dent.

Moving into the third quarter, the markets have continued to give weak signals, even though stocks appeared to hit bottom in mid-August. "During September, we expect the markets will continue their current rallies as we move closer to the next great bubble boom expected to start later this year," said Dent.