Saturday, April 21, 2007

Recent Rally and Future Outlook

The strong performance of the stock market last year was driven by a lot of Mergers and Acquisitions activity. That activity has yet to slow. It seems each week there are one or two purchases announced of companies for many billions of dollars. I think the recent strong performance, during the past week, has been driven by strong corporate earnings. Almost all of the big companies are reporting to the upside, with fairly strong future outlook. I think that this trend should continue throughout the rest of earnings.

I am interested in how the oil stocks come in, and they will start reporting this week. I have recommended a lot of oil companies on this blog, and they have all performed well in the past few weeks.

I think that we still are at risk for a pretty good correction though. On Feb 27, we showed that we can be at mercy to overseas market performance, particularly Chinese. There are also a couple of other things to be concerned about: the weak dollar and inflation. I think a lot of this rally has been in part to steadily increasing inflation. The money we are making now isn't worth as much as it was just a couple of years ago. Corporate profits have increased because of this, and thus the stock market has increased. But the salaries of most Americans doesn't seem to be increasing at the same rate, and this could be a problem for our economy as a whole. I think this has been the cause for poor credit and mortgage defaults that have been the issue as of late.

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