I expect we will be seeing those kind of normative gains next year.
You'll see markets continue to do the Cha-Cha, moving higher, but paced by brief retrenchments. It's not going to be as good as last year, but I think 2004 will still be a good year for the stock markets.
With Iraq off center stage, there is more good to focus on than not. The prospect of a double-dip recession will fade, I think.
On a macro level, we are at the beginnings of an economic recovery, not as fast as some people want, and we may have some altercation with Iraq in the next six months. That uncertainty is putting the foot on the accelerator and pulling it off the accelerator at the same time.
I think there is a lot of nervousness that we'll have a repeat of last time. No one wants to see this drag on like it did in 2000.
I think that there is an upward bias. The market for the first time in a long while is wanting to go up.
The market is in a wait-and-see mode. It's waiting for confirmation of an economic recovery, some kind of resolution on Iraq and on what the Federal Reserve is going to do in its meeting this month.
We expect the year to end 2 to 3 percent higher or lower than where it is now. The case for it going down is a massive run of profit taking. The case for it going up is people wanting to get a jump on the January rally.
I think if you look at volume it would seem to indicate there very likely may be a return of investors. People who are more opportunistic have seen the signs. But a lot of people are waiting for clarity.
Three years ago people actually thought that the Dow could go to 36,000 and it did the opposite. It's when people have really given up on the prospect of a real rally that you see a real rally, but try telling that to most investors now. Three years ago there was no reality dose, today there's no perspective.
This is not an expensive stock. We think Merrill certainly has a significant amount of upward opportunity.
But I think the way the market is acting is actually healthy. You're seeing a real resilience on the part of the market. You're seeing a willingness to shrug off or contextualize not great news, which is a big improvement over June and July, when if the market was open, it was down.
Today, there isn't any economic news, and the earnings news is having an impact on those stocks but not the broader market.
The CA investigation is an ongoing thing. They've had problems long before accounting scrutiny was fashionable, so the impact of that is muted. There is the sense that the market wants to shrug off the bad news.
There's no real compelling reason for stocks to be up. But you've got little new news and there's an upward bias, so we're up today after a few days of selling.
Profit news continues to be good, and we are seeing some relief from the profit taking of the last few weeks. But there is an ongoing tug-of-war between 'we've come too far too fast,' and 'the economic recovery is strong' and you're seeing that played out on a day-to-day basis.
My sense is that you'll see a few more days of gains as a lot of money managers want to be long the market through the quarter end.
It's a mixed picture. There's no question that the news is a lot better, but it may be priced into the market.
We were going to have a knee-jerk negative reaction to the Fed's decision no matter what, with so many different opinions on what should be done, but I think today, it may be that people are looking more closely at the statement and see it as the Fed saying things are slowly going in the right direction.
You're really going to need to see some bellwether companies saying the quality of earnings is improving and that it's due to growth, not cost-cutting, before investors are going to be willing to set aside the skepticism.
The market is clearly in a cha-cha mode. There's very little conviction and that's why we're seeing this kind of volatility.
I think as the year goes on there is going to be more conviction about an economic recovery. I think the market's sort of sideways with an upside bias at least for the next couple of months. I think we'll have a nice fourth quarter.
We're seeing the reality of a market that does not have any great conviction. Anyone who expected a linear, 'We're off to the races' kind of tone after last week was mistaken.
The forecasts for the second-half of the year for the most part seem to support a recovery, but to some extent, that's already priced into the market, so you're not seeing that much stock reaction. There's not a lot of conviction and some people will take profits. But I think there will continue to be a moderately upwards bias for the remainder of the year.
These accounting worries go right to the underpinnings of trust and confidence. If trust isn't there, you're tugging at the loose thread of a cheap polyester suit. People are worried about what other shoes are getting ready to drop.
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