Firing on All Cylinders

10/15/2007 12:00 am EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Pamela and Mary Anne Aden, editors of The Aden Forecast, say the Federal Reserve's rate cut has launched a new bullish phase for world stock markets, which they expect to continue.

The drop in US interest rates was very bullish for [stock markets around the world], and they didn't waste any time reacting. The Dow Jones Industrial Average surged more than 300 points in its biggest up move in four years. It was the same story in Europe, Asia, Latin America, and nearly everywhere else.

Many of the markets soared to new record highs, reinforcing that the global bull market in stocks not only continues, but based on the force of these renewed up moves, it's also entering a stronger phase. Now that the Fed has waved the flag that interest rates are going lower, there's really nothing holding the market back.

Plus, don't forget that the rest of the world keeps surging ahead. Dozens of countries are booming and their economies are much stronger than the US. That's being reflected in their stock markets and it's one important reason why foreign stocks have been outperforming US stocks for the past few years, and they still are.

This year, for instance, the Chinese stock market has been the world's top performer, gaining 115%. That's eight times more than the gains in the Dow Industrials and more than twice the gains in the South Korean market, which is currently in second place for 2007.

Many feel that China's bubble is going to burst soon, but it hasn't. The rises have been spectacular, but if we compare the rise in China to mania rises of the past, like NASDAQ in the 1990s, gold in the 1970s and others, Chinese stocks could still go much higher.

Generally, the Asian stock markets have been the strongest world stock markets, along with Brazil and Turkey. But within the US market, the strongest stock sectors have been just as strong as the best international stock markets. Our recommended natural resource stocks, for example, have gained 44% on average so far this year. In other words, after China, natural resources are at the top of the list as the world's top performing stocks.

As far as the US market goes, the Dow Jones Industrial Average is the strongest index. The NYSE Composite and Standard & Poor's 500 also hit new record highs, confirming the action in the Dow, which is very bullish. The same is true of NASDAQ, which reached a new bull market high.

The laggard has been the Dow Transportation index, but with the Dow's leading indicator rising, all stocks will now likely continue to head higher. Aside from natural resources and energy, other strong sectors in the US have been technology, telecommunications, computer, communications, and, of course gold.

Common stocks have been weaker than gold, [and gold's] percentage gains have been greater compared to the Dow Industrials. We believe this trend is going to continue.

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