The bull market will continue for the rest of year, but there also will be volatility, market strategists told CNNMoney.
Falling gasoline prices and the possibility of a bottom in home prices might help increase corporate profits in the second and third quarters of the year, leading to higher stock prices. Stocks are on par with closing the first half of the year with “decent gains,” CNNMoney reported.
The price of Brent crude oil has fallen from a high of $128.40 a barrel in March to $88.49 a barrel last week, the lowest since December 2010, while the Standard & Poor's/Case-Shiller home price index showed increases in 19 of the 20 cities tracked for April from March.
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“Companies have found a way to keep a lid on costs, so along with lower gas prices that generally means stronger earnings,” said Joseph Tanious, global market strategist at JPMorgan Chase & Co., adding that companies are also benefiting from lowered expectations.
David Rosenberg, chief economist at Gluskin Sheff + Associates Inc. and a bear investor, told CNNMoney that he will turn bullish at some point, but not yet. However, he noted, “You want to be careful about becoming too pessimistic in the current environment.”
Although paring back some of his stock holdings, Ed Keon, managing director of Prudential’s Quantitative Management Associate Funds, is still keeping the fund approximately 60 percent in equities for the time being.
Even the most optimistic market strategists believe the rest of the year will have wide volatility and will mimic the second half of 2011, which experienced triple-digit swings sometimes.
“It will be a lot like last year and the year before that. We'll see lots of violent fluctuations,” said Robert Tipp, chief investment strategist at Prudential Fixed Income.
The looming fiscal cliff, the European debt crisis, Spain and Italy’s debt problems and a potential crisis in Iran will fuel the volatility.
However, Rosenberg said there is a grass-roots desire in the United States to fix its fiscal problems and soon there will be political will to cut the country’s “really excessive indebtedness.”
While market participants are still investing in equities, they are leaning toward dividend stocks.
In addition, market experts recommend investing in corporate bonds, as they are safer than stocks and give investors a better return than do U.S. Treasurys.
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