Ride this new bull market to gains

By Steven Goldberg, Kiplinger

The world hadn't experienced a financial meltdown this awful since the 1930s. Because of huge government and consumer debt burdens, plus continuing problems in the financial system, the recovery will certainly be anemic. The U.S. stock market -- up more than 50% from its low -- is no longer cheap.

But the big-picture thinkers I trust most say the bull market is far from over. Yes, I mean "bull market." People are so negative on stocks that few label the current advance a bull market. But what else do you call it when the Standard & Poor's 500 Index ($INX) surges 52% in less than six months?

Widespread pessimism is actually a bullish sign. It means other investors are wary of stocks. Indeed, $3.6 trillion is currently parked in money-market mutual funds -- even though they yield virtually nothing. That's a lot of fuel to lift the market higher. The Federal Reserve Board's easy monetary policy is also bullish for stocks.

But don't take my word for it. Listen to Steve Leuthold, who heads the Leuthold Group, a Minneapolis research firm. Or to Jim Stack, a money manager and newsletter writer who turned bullish soon after the market's March 9 bottom (see "Time to say goodbye to the bear?). Both are savvy veterans.

Leuthold tracks 190 indicators, which measure everything from how cheap or expensive the market is to the level of pessimism or optimism among investors. He also studies economic conditions.

The signs all point up

As a group, the indicators are currently more bullish than they have been at any time since 1989 -- except for a month ago. Leuthold says the S&P 500 will likely rise to 1,200 by year-end, a gain of almost 20% from its Aug. 31 close of 1,021. "We're not looking for a robust recovery," says Andy Engel, Leuthold's senior research analyst. "But we should get good-size stock returns over the next six to 12 months."

Stack, president of InvesTech Research in Whitefish, Mont., comes to nearly the same conclusion. "Virtually all the technical blocks are in place for a bull market," he wrote recently. "Unless the technical backdrop changes, we expect the market to continue to work its way higher with the potential for solid double-digit gains over the next six to nine months."

Video: Is this a new bull market?

Neither Leuthold nor Stack sees an imminent return of the "good old days" of the 1980s and 1990s -- when stocks soared an annualized 18%. Nor do I. But that doesn't mean you won't make money in stocks.

More reasons for more rally

Want some other reasons the market should keep rising? They're numerous. Whenever we've had a horrible decade, the market has produced terrific returns in subsequent years. And while the economic recovery will be subdued, corporate earnings will jump compared with their depressed levels of the first half of this year.

Continued: The dirty secret

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