Optimism Is Improving That Global Economy Is Bottoming

Last week both the DJIA and the S&P 500 rose over 7%, the best weekly advance since March and many started to sing “Happy Days are Here Again.” It’s a wonderful song, but with a history of terrible timing. The song was copyrighted in 1929, probably the worst time in our history to be giddy about the future. Further blackening its reputation for timeliness, it was the campaign song for Franklin Delano Roosevelt’s 1932 Presidential run. The nation still faced some eight years of economic grief. The timing of the song is much better today than in the past, but it is still critical for investors to keep things in some common sense perspective.

Market action since March 9 does say that prospects for stocks are much happier as evidence continues to grow that we have seen the bear market lows. Has happiness been over-celebrated a bit in the stock market? Yes, probably but that’s the nature of the market. The economic data does justify some increased happiness as evidence grows that the recession will end soon. Our long-standing opinion that it would end in the August-September period still appears reasonable.

Last week the June Open Market Committee meeting minutes showed that the Fed had raised its economic forecast for both 2009 and 2010. While we remain optimistic and continue to predict a higher market by year-end, there are plenty of uncertainties that are reasons not to declare that “Happy Days are Here Again” for sure. No one knows how solid a recovery the economy will put in next year. We also face an unclear health plan, prospects of higher taxes on the “rich” and a great big Federal deficit.

Of course the international scene continues to cause sleepless nights. However, there was international news that some countries are beginning to realize that talk will not keep Iran from developing a nuclear bomb. If so, this could open the door for some strong military actions. The threat of a nuclear Iran has been a big, black cloud over the market. The market could use a several day time out.

Today – stocks and oil prices rose overnight on optimism improved corporate earnings will show the global economy is bottoming.

By Chief Market Strategist Al Goldman and Senior Equity Market Strategist Scott Marcouiller.
Source: Wells Fargo Advisers Stock Market Opening Commentary, July 20.