Take A Step Back
by Charles B. Carlson, CFA
Dow Theory Forecasts

Sometimes it's best to take a step back from an issue to gain a wider perspective.

Take the stock market. Right now, everyone's attention is fixated on Iraq and North Korea and rising oil prices. Obviously, those factors create some strong headwinds for near-term market performance.

But if an investor would step back and look at the macro picture, here is what he or she would see:

• The economy continues to improve. Yes, this improvement has been erratic at times. However, over the last four quarters, the trend has clearly been to the upside.
• Corporate profits are improving. Again, the improvement has been a bit sluggish at times. However, we continue to see improvement in corporate profits on a sequential basis, and that should continue this year.
• The Dow is already down roughly one-third from its peak. Stocks are hardly priced to perfection. Indeed, there has been massive damage in all major indexes over the last three years. That is not to say that further damage isn't possible. Still, investors need to understand that the problems of this market are largely reflected in stock prices.

Bottom line: Global issues aside, this recovery walks and talks and smells like a reasonably typical recovery in the economy and market. What that means is that investors who want to capitalize on the early stages of a recovery need to be nibbling in stocks now, not when things are all bright and rosy and stocks are already sharply higher.

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