The Bull’s Best Days Aren’t Over

08/09/2007 12:00 am EST

Focus: MARKETS

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Jim Lowell, editor of the Forbes ETF Advisor, says investors need to look past their fears to what he sees as solid fundamental reasons the bull market will continue.

July's bucking bronco market stopped investors in their tracks [as] concerns that best days of our recent bull market may be out of the barn increased. Europe's markets, like our own, sold off more than 5% in a matter of days. Asia's markets remained a mixed bag, with Japan leading the downward slope and China's stock market moving to the beat of its own drum.

[Investors'] focus has clearly shifted from the known long-term benefits of staying the course to near-term fears of the unknown. Those fears aren't unfounded, but they aren't well grounded, either.

Such fear isn't hard to understand: right now, the stock and bond markets are looking like the housing market-too few buyers for too many items, an absence that creates a self-fulfilling correction.

At this moment, the markets are increasingly vulnerable to any piece of bad news; over the next several weeks, we probably won't have to look too hard to find a hedge fund to collapse, a home builder to get plowed under, or oil prices to break $80 on a whim, any one of which could set the stage for a correction of 10% or more before [the market] capitulates to the historically solid and sound fundamentals.

Second-quarter gross domestic product (GDP) growth came in higher than expected. Our economy delivered just what the market needed: signs of a significant rebound without any visible inflationary or recessionary clouds. Net net, our economy remains on its slow-growth, not no-growth, track, while the economies in the established and emerging markets are growing like gangbusters
.
With such a safety net below the markets' feet, the risk remains on missing out of the long-term rally rather than falling and not being able to get back up. I do think there are fundamental reasons to be cautiously optimistic about year-end gains.

Earnings, the driver of every long-term market, didn't disappoint this month; they just got overshadowed.  Earnings, and why they matter, may continue to be overlooked in the near term, but it's hard to ignore that even in one of the most beleaguered and beaten-down sectors within the broad market-drug stocks-companies like Merck and Schering Plough beat significantly to the upside and provided upbeat forecasts for the remainder of the year. Moreover, we're seeing a significant number of multibillion-dollar buybacks.

Against the backdrop of growing economies, growing markets aren't hard to envision-unless it's a dark time when fears increase and shadows make us jumpy. Experience teaches us that the only way to ensure that you'll get lost in dark times is to abandon the path [that] you know will break on through to the other side.

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