The Christian Science Monitor reports on the recovering stock market and gives several reasons for being bullish on 2005 in this column:
After collapsing and floundering for about three years, the stock market is finishing 2004 with a solid 8 or 9 percent gain, following a gain of more than 25 percent last year. Some commentators are also optimistic that the elements are falling into place to make 2005 a positive year as well.
Since the market hit bottom on Oct. 9, 2002, it's added by some estimates about $3 trillion in value to investors' net worth. For example, an investment of $10,000 in the Standard & Poor's 500 Index on Oct. 10, 2002, would be worth $15,406 today.
1. There has been a new spurt of mergers and acquisitions, including a takeover battle for the wireless company Sprint. And software giant Oracle has swallowed People Soft for $10.3 billion. "The mergers are a favorable sign for stocks," says David Kotok, chief investment officer for Cumberland Advisors Inc. in Vineland, N.J. "It's also a sign that very low interest rates create terrific deals, and financing costs are low."
2. Investors seemed to be enthusiastic about President Bush's reelection. Since the end of October, when it became clearer Mr. Bush would win, the market has perked up. "I think it's because they view him as relatively light-handed as far as regulatory matters are concerned. He'll be retaining the tax cuts and pressing for tort reform and trying to privatize part of Social Security," says Robert Hormats, vice chairman of Goldman Sachs International. "All of that is considered pro-market."
3. There may be some changes in the economy that will benefit the market, including lower oil prices and a weaker US dollar, which permit US companies to compete better with foreign companies.
The article also cautions against excessive optimism, however, and gives several reasons why the rebound is still a little weaker than has historically been the case with recoveries. Nevertheless, the overall prognosis is good.