Saturday, November 27, 2004

What Are Stocks Saying

by Larry Kudlow.

The red-hot post-election stock market, which really began to rally last August, is pointing to stronger, not weaker, 2005 economic growth. This thought was not picked up in this morning’s WSJ survey of 57 economists, but markets are better forecasters than economists. Treasury bill rates, which have been rising since last June, are sending the same strong economic growth message. Profits are more than healthy, business cap-ex investment is strong, and the pace of job creation is increasing. The post-tax cut Bush boom continues to surprise its critics. More supply-side tax reform is on the way. Inflation is nil. Oil prices are vastly overrated as an economic deterrent. The dollar is way undervalued.

The brilliant stock strategist Elaine Garzarelli says that if the 80-month moving average of the S&P 500 closes about 1166 on November 30th, it would be a new buy signal. This has only happened 10 times since 1906 (that is, a breakthrough on the 80-month moving average.) Every time, it has led to a very strong bull market. Right now, the S&P 500 index is 1177. Lookin’ good. Could well be that in the next 6-9 months, the S&P index will get back to the all time 2000 high. Think of it.

[This article originally appeared at Kudlows Money Politic ( Lawrence Kudlow is a former Reagan economic advisor, a syndicated columnist, and the co-host of CNBC’s Kudlow & Cramer.]

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