The expert who famously predicted the housing bubble and the 2009 bull market believes that despite lingering fears in the marketplace, stocks could “easily” return double-digit gains this year.
The last time I interviewed investment guru Jim Stack, he was a lonely bull in a bearish world.
It was last August, when stocks appeared to be in a death spiral. On Monday, August 8, the Dow Jones Industrial Average fell nearly 635 points. After rallying 400 the next day, it lost almost 520 on August 10, closing at 10,719.94.
That was 16% below its March 29 peak, and if it wasn’t quite a bear market, it seemed well on its way to becoming one. Much of the rest of the world was already there.
Not so fast, said Stack, president of Stack Investment Management and InvesTech Research. He declared that no recession or bear market was on the horizon. Given Stack’s excellent long-term track record and early predictions of a housing bust and the 2009 bull market, it was worth paying attention.
Read Howard’s previous column on MoneyShow.com about Stack’s prediction the bull would continue.
He also said he was remaining bullish as long as the S&P 500 index stayed above 1100.
Last October 3, the S&P closed at 1099.23. But it took off and closed Tuesday at 1362.21. That’s almost a 24% gain from its lows, and just about back to its recent peak last April 29.
So, now that he’s been vindicated, what does he think?
I caught up with him recently at the World MoneyShow in Orlando, and yes, he still believes we’re in a bull market, though he wouldn’t be surprised to see a correction after stocks’ recent run.
“When you set aside the fear and look at the leading economic indicators and the technical environment, that’s a balance weighted in the investor’s favor,” he told me. “We’re just not seeing the usual warning flags.”
As he did last summer, Stack insists “the underlying economy is doing better than people think.” In fact, he said, “the economy is still expanding,” albeit slowly.
For instance, the four-week moving average of initial claims for unemployment is at its lowest point since 2008.
“There’s not a recession that’s begun with unemployment claims with new lows,” he said, adding that initial claims usually turn up four to six months before a recession begins.
Also, consumer confidence, as measured by the University of Michigan and the Conference Board, has recovered completely from last summer’s debt-ceiling stand-off, he said.
Stack also likes the market’s technical condition.
As of last Friday, we have yet to experience a single trading day in 2012 in which the S&P fell 1%. That’s the first time that’s happened since 1995, Stack said.
Also, the Advance/Decline (A/D) line—which compares the number of advancing stocks with the number of declining stocks—has broken out to new highs ahead of the major indexes, he said.
“This shows an underlying strengthâ€¦and is one reason why almost all major indexes are very close to matching or exceeding their highs hit in April of last year,” he wrote in the latest issue of InvesTech Research.