CHICAGO (Reuters) – Every time I hear the rumblings of a broad-based stock rally, a song from The Who echoes in my head: “Won’t Get Fooled Again.”
Well, I’m not going to tell you that this time it’s different, because it’s not. You just can’t predict where the market is going based on two out of 12 months. There are some awful nasty things swirling around out there – European sovereign debt, a dreadful U.S. housing market, oil price increases, Middle East tensions. If you have worry beads, they are probably worn to the nub.
Yet there are some signs that the stock market’s animal spirits are not just howling at the moon.
On February 24, the Standard & Poor’s 500 Index hit its highest level since the collapse of Lehman Brothers in 2008. Will the rally continue? If the United States is in a sustained economic recovery mode, then broad-based investing makes some sense now – if you can afford to be in the market at all. Here’s what I’m seeing:
* Cyclical stocks – companies that respond to changes in business cycles – have been leading the way. That means institutional buyers believe – for the time being – that sectors like consumer discretionary companies (luxuries, entertainment, technology) will benefit from higher consumer spending. That’s a good sign the larger U.S. economy is on the mend. According to Standard & Poor’s Capital IQ, “this sector can keep outperforming as low economic expectations likely continue to be exceeded.” What S&P is saying is that if most economists are wrong about 2012 being sluggish at best, you’re going to make money betting against these dismal scientists. If consumers keep their wallets open, then you’d want to be in a diversified exchange-traded fund like the iShares S&P 500 Growth Index.