2010 Stock Market Predictions

I have been known to make predictions, and although I dislike leading people in an y direction, I am doing this for fun only. Please do not follow me, rather make your own personal choice while investing in the stock market. If you search my past predictions, you would see I predicted back in March, when everyone was panicking that the Dow would be at 9000 sometime in July. I also predicted the bottom of the market the day that it hit the bottom in the low 6000's Most of my predictions are just gut instincts, and really probably should not be used as an investing guideline, however Here I go with just a few more.

2010 Stock Market Predictions. (Prices predicted at the start of 2010)

Dow - 10650
We have just over 5 months before the beginning of 2010. The recession will likely be announced over sometime before the end of this year, and we may see the unemployment rate begin to ease. Stocks are still undervalued compared to their future profit potential. I think as long as there are no major snags along the way, 10,650 is a pretty good spot for the Dow to be trading at. That's almost a 20% gain from today's prices.

Google (Goog) - $550
I still love Google. The internet continues to grow, and the mobile internet continues to explode. Google has it's hands surrounding both. Internet ad revenue should continue to grow at a huge rate, and Googles new Wave could bring in a ton of users worldwide. Google should slightly out perform the market over the next 5 months leading to 2010.

Bank of America (BAC) - $23
Bank of America, although they have their share of issues, is a very strong company that should easily have explosive profit growth once the recession is over and things pick back up. The acquisition of Merrill will certainly help them in this once things settle. The housing market is clearly thawing out, and the bank will be the ones to benefit from this. A 80% gain in the next 5 months may seem extraordinary, but if you look at how far this stock has fallen it really isn't.

CD Interest Rates
If you are like me, you may have some cash you have that you like to keep free. I usually do this with no-penalty Certificates of Deposits. Having said this, the rates have been under 2% as of late. I think that starting in 2010, rates should begin increasing. By the end of 2010 a 4-5% CD will likely become available. To start 2010, I am guessing maybe 2.5-3% CD's will be available.

Like I said, take these predictions with a grain of salt. Follow your own stock market lead, not mine.

Next Week: ExxonMobile Reports

So far this week, has been quite a thriller for those long in the stock market. Earnings reports came in better than expected for the most part, and Housing numbers surprised even the most optimistic experts in the field. So, will next week continue the rally? Could the Dow Actually start it's accent up to the 10,000 mark within a couple months? I guess we will all find out soon. Let's take a look at Next weeks agenda.

- Jul 27 10:00 AM New Home Sales
- Jul 28 9:00 AM Consumer Confidence
- Jul 28 9:00 AM S&P/Case-Shiller Home Price Index
- Jul 28 9:00 AM S&P/CaseShiller Home Price Index
- Jul 29 8:30 AM Durable Orders
- Jul 29 8:30 AM Durables, Ex Transportation
- Jul 29 10:30 AM Crude Inventories
- Jul 29 2:00 PM Fed's Beige Book
- Jul 30 8:30 AM Initial Claims
- Jul 31 8:30 AM GDP-Adv.
- Jul 31 8:30 AM Core PCE
- Jul 31 8:30 AM Chain Deflator-Adv.
- Jul 31 8:30 AM Employment Cost Index
- Jul 31 9:45 AM Chicago PMI
- Jul 31 10:00 AM Employment Cost Index

As you can see, there are a lot of second quarter numbers coming out. I will be paying particular attention to the New Home sales, as well as the home price indicators, to see if the increase in pre-owned home sales was caused by a lowering of prices, or a decrease in new home sales, or if it the entire market is beginning to thaw. The unemployment and GDP numbers should also be significant economic indicators to fill us in on the state of the general economy. Next week is also another big one for earnings. Below are some of the key companies reporting next week:

Monday:
Radio Shack
Sohu
Verizon

Tuesday:
BP
Earthlink
Mittel
Viacom

Wednesday:
Hess
IAC

Thursday:
Brunswick
Expedia
ExxonMobile

Friday:
Chevron

AAPL, Dynamite Again

There are only a few companies in America that I can say are as exciting as Apple (AAPL). Not only is Appl continuing to innovate, but while just about every other computer company has flopped during this recession, they report that sales of their personal computer, iMac's are up. That is incredible, and just goes to show how popularity in one area can mean success in all. Ever since Apples Launch of the iPod several years ago, a product which has become the symbol of electronics for this decade, the "coolness factor" has driven up sales in all their other product lines. Than came the iPhone, which just built upon the iPod's successes.


So, whats in the future for AAPL?
You might think, "hey, the glittery exterior of the iphone and ipod are wearing off, how will Apple keep the success coming? Simple. They will do what they did in the first place, innovate. Rumors have it that sometime this year, Apple will release a tablet like computer. Some describe it as a larger iPod touch, while others describe it as a possible alteration to the newly popular netbooks. Either way, I'm certain they will blow us away with their innovative foresight.

It just makes me wonder. If a company like Apple who sell products which cost consumers prices that are above average in each area they are in, can prosper in a recession, what happens when the economy begins to grow again? Might be time to considering adding some of their shares to your stock portfolio.

AAPL, PFE, and Others Report this Week

After quite an eventful week last week, we are in for a bit of a quieter one for economic data. Having said this, we will likely get some excitement from the earnings reports being released this week. Last week saw the market rebound quite well. Intel's results combined with that of Google, and the major banks propelled us back up towards the highs of May. The existing Home sales number coming out on Thursday will be quite important to see if home sales are maybe trending towards a rebound, or at least leveling off.

Jul 20 10:00 AM Leading Indicators Jun
Jul 22 10:30 AM Crude Inventories 07/17
Jul 22 10:35 AM Crude Inventories 07/17
Jul 23 8:30 AM Initial Claims 07/18
Jul 23 10:00 AM Existing Home Sales Jun
Jul 24 9:55 AM Mich Sentiment-Rev Jul


There are way too many stocks reporting this week for me to list, but I'll list a few for each day of the week that I feel could be important market drivers.

Monday:
Halliburton
Texas Instruments

Tuesday:
AMD
Apple
Continental Airlines
The Coca-Cola Company
Yahoo

Wednesday
Altria Group, Inc.
Ebay
Etrade
Eli Lilly
PepsiCo
Pfizer
Piper Jaffray

Thursday
3M
Amazon
AT&T
Baidu
Bristol Myers Squib
Wyeth
Xerox

Friday
Exelon

Stock Market Good News Emerges - Goog Reports

It seems that just last week, the investors were once again worried about the status of our economic recovery. People began questioning if the market rally from the 6000's to the 8000's were warranted. Fast forward a week, and now it seems we are all blissful with dollar signs in our eyes. There are a few things propelling us.

Earnings reports:
Intel released what some experts are calling a monster blowout in both earnings and their forecast. Intel stock shot up close to 8% following earnings, and looks to be in great shape. They also took much of the computer sector as well as the entire DOW and S&P with them, as we saw the Dow up over 256 points. Clearly Intel's results signaled to traders that the technology industry is on the rebound, which also means just about every other industry must be as well.

Jobs Reports:
Unemployment is still going up, however, this morning we learned it was going up at a much slower pace now.Initial jobless claims dropped by 47,000 to 522,000, lower than forecast, in the week ended July 11, from a revised 569,000 the prior week, the Labor Department said today in Washington. This gives us hope that we could see the unemployment number begin to fall by year's end.

Google (GOOG) reports at the close today, and investors are certainly excited to see their results. Google is expected to earn $5.09 per share on revenue of $4.06 billion, based on the average estimate of analysts surveyed by Thomson Reuters. If they beat this number, it would be incredible news for most of the market. We will see around 4:15 today.

Predicting the Stock Market With Bets

One of the sites I like to look at to get a true feeling of what people expect, weather it is with the economy, sports, politics, etc, is Intrade.com. Basically Intrade is a betting site, that works sort of like the stock market. The higher the share price, the more likely people think an event will happen. There is not better way to get a good accurate feel of a general populations thoughts, than through betting. Polls, and questionairs can be deceiving, as the people taking them do not have an incentive to be honest. With Intrade, people put their money where their mouths are. So, I will take a quick look at some of the states:

According to the bettors at Intrade.com the following is true according to the last trade price at the betting site.

Facebook IPO
14% Chance that FaceBook Will announce an IPO by December 31st, 2009
31% Chance that FaceBook Will announce an IPO by December 31st, 2010

Dow Jones Price Target
88.5% chance the Dow will end at over 6000 on December 31st, 2009
77.5% Chance the Dow will end at over 7000 on December 31st, 2009
30.2% Chance the Dow will end at over 9000 on December 31st, 2009
7.8% Chance the Dow will end at over 11000 on December 31st, 2009

Economic Data
55% Chance the US Unemployment will be Greater than 10.50% by December 31st, 2009
7% Chance the US Unemployment will be Greater than 11.50% by December 31st, 2009
55% Chance the US Recession will end in this Quarter (Quarter 3)

Just thought these numbers were interesting. Take them for what they are.

GMGMQ Halted, Finally

I very rarely blog about one particular stock, however with this instance I am making an exception. Earlier today the the self regulatory body of the brokerage industry, FINRA stepped in and halted trading on the Bankrupt General Motors company, now known as "Motors Liquidators," with ticker symbol GMGMQ.

Why did it Take so Long to Halt GMGMQ?
This is a question many people are asking. Why didn't this stock get halted weeks ago? General motors stated repeatedly that the shares of GMGMQ would be worthless once the US government, the United Auto Workers, and the company’s bondholders take their pieces of the restructured company. By allowing it to continue to trade it allowed for manipulation to occur, and traders to make quick money off of the uninformed.

What Sparked the Halt?
Earlier today the stock surged, up 38% for really no other reason then stock newsletters pumping it up. The initial jump in price caught the attention of investors who thought that maybe the GMGMQ symbol represented the new General Motors which emerged from bankruptcy just last Friday. This was not the case, thus the halt to stop the confusion.

It's pretty crazy when a company that claims their stock is worthless trades at a market cap of over $600 million, like it was at at the time of the halt earlier today. I just wonder how many investors lost big money thinking they were buying into the new General motors that is now no longer bankrupt.

Recession of 2007 - 2009 Compared with Others

I thought it would be interesting to compare the current recession we are in to the average recession in the the last 25 years. Recession's are normal cyclical events that happen on average every 7-8 years or so. Although the media often blows things out of proportion, without recessions, we would eventually have bubbles in every market, which would eventually collapse, causing a much more severe event, called a depression.

In the last 15 years, not counting the last 2 which are part of the current recession, the average recession lasted only about 8 months. The current recession we are in right now, however has lasted over twice as long, at 17 months and running. With any recession, there is a bear market as well. The average bear market between 1983 and 2007 lasted 1 year (12 months). The current bear market that we just saw lasted 19 months. The bear market is over, at least for now, but the recession has yet to officially be declared over, and likely won't be for some time to come. Even if the recession is over, it will take about 4-5 months to determine that for a fact.

Despite the negativity of it all, there is some good news. The bear market appears over, thus we are likely at the start of a bull market run. A bull market, unlike it's evil twin brother, the Bear market lasts on average about 4 years or about 49 months. Since we are starting at such a low base, it is likely this bull market will be stronger than most. The average Bull market can show returns over 100%, with one third of that gained within the first 12 months. The lesson of this is that despite all the negative media over the last 12 months or so, things probably won't be as bad as most experts were predicting, and the great thing about it is that if you have cash on the sidelines, and a little risk to bare, now is an amazing time to invest in the market with a long term horizon.

Stocks to Protect Against Inflation

Inflation is all but certain in this economy. The government has interest rates set as close to 0 as you can get, plus they are buying up treasuries. Sooner or later, the printing press's will have to be put to work, and with that, comes inflation. I, by no means, expect to see hyper inflation, or even inflation rivaling that which we saw in the 70's and 80's, however, we will have it, and it will be strong in my opinion.

So, what does one look for when investing in stocks that will protect you against inflation? Well, first and foremost, the stock market is not a terrible place to have your money when inflation is upon us. Inflation is a rise in prices. When prices rise, that means it is likely that your stocks will be earning more money. What you want to look for are stocks which are quickly able to adjust prices, as well as companies which are not effected by the rising costs of raw materials. You want companies which have fixed costs such as machinery, real estate, or labor, rather then those that rely on a lot of buying of materials. You also want to look at companies which sell food, beer, wine, cigarettes, and oil. Here are just a few:

ConocoPhillips (COP)
They have a business that is tied more towards the actual oil price then most of their competition.

Molson Coors (TAP)
They rely on less raw materials then their competition. That;s why maybe their beer is usually more watery. Might not be good for the taste buds, but during times of inflation, their costs rise less than their revenue.

Eli Lilly (LLY)
They make important and vital drugs. Their dividend yield is 5.8%, and people don't stop buying drugs they need to survive when inflation hits.

Remember to diversify your holdings and don't just invest in stocks. Keep some cash on the sidelines so you can react to any changing conditions, and also consider a small amount of gold or silver as a precaution to unforeseen economic events.

3 Possible Scenarios for The Bull Stock Market

Over the last 3 months we have seen the major US markets rise almost 40%. That is an unprecedented increase in stock prices, one that any investor would love to have in a 5 year period, much less only 3 months. Investors however are now asking, "what's next?" Below are 3 arguments and my personal opinion on their likelihoods of happening:

The Market Is Overbought and Sells off for Big Losses, Dow Back to 7000
It is possible that the market has gotten too far ahead of the economy. The markets are usually 6 months ahead of the economy, so right now it's pretty much saying that a recovery will be in the works within 6 months. A 40% gain in only 3 months is staggering, and even if things were looking amazing for the economy such a gain is hard to maintain without some pullback. Could we pull back into the 7000-7500 range for the dow?
I give this a 20% chance of happening.


We level Off but maintain current levels for the next few months?
Even though the market has risen quite a bit, the optimism and good values keep things steady and in a range of 8500-9000 for the next few months until we get more solid news on the status of the recession. A mix of good and bad news will keep things bouncing around in a rather narrow range until August or September.
I give this a 45% chance of happening.


Good news continues to keep the Market Rising, perhaps to 10,000 - 10,500 by September.
With stocks that were way undersold, still being cheap, and news continuing to mount that the recession is all but over, the markets could react favorably. Sure we have gone up 40% in 3 months, but in order to get to level we were at before the whole Lehman Brothers mess, we would still have to rise another 25-30% from were we are at right now. With a mixture of Good news, and companies reporting earnings better then expected for the 3rd quarter, we could see the dow approach the 10,000 mark or even higher by September.
I give this a 35% chance of happening.

Whats the Better Investment Now - Stocks or Bonds?

With the stock market up nearly 30% from it's lows only 3 months ago, many investors are speculating that it may now be time to consider investing in Bonds, which could pay off better then stocks int he long run. That's at least what some experts are saying. Me, on the other hand, disagree.


Bonds:
Bonds are still yielding extremely low rates of return compared to the past. The 10 year Treasury is paying just about 3.6%. That's not terrible, but you have to consider that inflation could easily reach 3.6% within the next year, and likely will go a bit higher than that. If inflation strikes like many experts think, we could see 10 year Treasuries paying over 6% easily, meaning those lowly 3.6% bonds you purchase today will be worth about 60% then. I, in fact, do like some of the more risky corporate bonds, where you can get a return as high as 10% on companies which really are not in that bad shape.

Stocks
Right Now, even though the market is up 30% from it's lows, I am still a stock guy. Although I do own some bonds, I believe that the stockmarket is the place to be. Why in the world would you buy a 3.6% Treasury bond that is locked in for 10 years, when you can buy a stock like Verizon (VZ) which has a 6.25% dividend, you can sell whenever you like, and will likely increase it's share price over the long run with or without inflation. If you are looking for the stable return of bonds, then buy some of the blue chip dividend stocks like Intel, BP, Pfizer, Bristol Myers Squibb, Altria, etc. You will get a pretty reliable stable return higher than 3.6% plus have the stock price gain to look forward to as well.

Conclusion:
Stocks are still an excellent buy. With the economy picking up finally, most dividend stocks which have yet to cut their dividends will likely be safe from here on out.

Historic PE Ratios Compared to Interest Rates

I don't have all that much news to bring to you all today so I thought I'd take a look at another chart. Below is graph of Interest rates vs the PE Ratios (Price to earning ratios of the S & P 500) over the last 120 years in the United States:



Like I said before I love looking at graphs and charts because they can tell you more than an entire 10 page essay could in just a few seconds. As you can see, we are currently at a pretty high average PE ratio, but having said this, it is so much lower then it was just a few years ago. You also must account for the fact that there is now optimism in growth, so a higher than average PE ratio is not all that bad. The current graph, however, leads me to believe that we may see a leveling off of the Dow at around 9000-9200, where it may stay and hover around for some time until better earning reports come out.

For those of you not familiar with PE ratios, it basically is the return a stock has over a year. If you have a PE ratio of 20, that means it will take the company 20 years to make a profit equal to it's current share price. Divide 100 by the PE ratio and you will get the rate of return the company is making. For instance 100/20 = 5, which means investing in the stock will provide a 5% annual return. Looking at the chart above you can see that in 1982, PE ratios were low, while interest rates were high. Is is because people could make a ton of interest just buying bonds, so why invest into stocks that have a yield lower then bonds do, at greater risk.

It should be interesting to see, how inflation could hamper the recovery of the US stock market should it go up by more then a few basis points.