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In This Issue:

Double Dip, Or Onward & Upward?
Many Winners Should Have Further To Go
Inflation, Deflation – Or Neither?
Beating The Bushes For Returns
The Bottom Line

After nearly six weeks of uncertainty, investors finally decided the outlook for the economy was improving enough to justify higher stock prices. Since our last newsletter in June, the Dow and the Nasdaq went up 3.4% and 2.1% respectively. Nearly all the gains came during the last two weeks.

Double Dip, Or Onward & Upward?

The stock gains notwithstanding, the recovery is still on shaky ground. With growth at an anemic 2.5%, it would not take much good or bad news to push the economy either way.

To make the matter even harder to call, many industries are growing strongly, but others are still losing money.

On the positive side of growth are the multinational blue chips that do a great deal of business overseas. Their profits are rolling in thanks to the healthy global economy. China, India, Southeast Asia, much of South America and many other regions have cooled off a bit, but most analysts think that's all to the good.

In This Issue:

Reasons For Cautious Optimism Continue To Appear
Many Promising Stocks Attract Long-Term Investors
The Bottom Line This Week

The stock market continued to lose ground last week as the Dow and the Nasdaq declined an additional 2.5% and 3.4% respectively.

A growing number of analysts believe the stock slide will continue until the market tests (reaches) the low point it made on November 20. If so, it will be a classic correction to a bear market rally.

A much bigger issue is what will come next if the November lows are reached. Pessimists believe the market will continue to decline until blue chip P/E ratios get closer to 10. If so, the S&P 500 would drop from today's 832 to 750, or so. Super bears think the index might fall another hundred points.

On the other hand, optimists believe the market will bounce back in a classic stage two bear market rebound. If history repeats, the second time should be the charm as a new rally would typically test its former highs – and then continue up. The 298 point jump the market took during the first three days of this week suggests that the optimists may be right.