Bull or Bear Market?

Bull or Bear?

By analyzing long-term cycles, Harry Dent sees a strong rally ahead. Also using long-term cycles, Steve Hochberg foresees a major market decline. Here, we offer their bullish and bearish views to help you decide if the glass if half empty of half full.

"It is likely that the markets will pull back briefly and then head up more sharply from April into around August," says Harry Dent in his H.S. Dent Forecast. "The typical pattern in the second year of the four-year presidential cycle is for a rally in January, sideways movements in February and March, a stronger rally from April into August, and then a sharper correction into October. The second year is the weakest, with only minor gains. However, in the second term of a president, the gains tend to be much stronger, near 20% on average.

"The Fed keeps looking like it will raise interest rates one to two more times. However, we still think that the economy is set to slow, which will change the Fed’s plans, with only one more rate hike likely and maybe not that. The slowing in housing should be a strong plus for stocks, as money continues to shift from housing speculation back into stocks, especially large-cap growth and technology stocks. The only obstacle to the markets continues to be high oil and commodity prices. We continue to expect these trends to back off soon and help to stimulate the surge ahead in stocks.

"We expect a much stronger rally than is typical of the second year, as we are coming out of a very bullish long-term trading range pattern from 2004 through 2005 and the Fed is due to end a long tightening cycle soon. If we don’t see the markets start to accelerate by April, we will scale back our forecasts. For now, we still see more upside than downside this year, even if the markets are less bubbly than our very contrarian forecasts. Investors should continue to be fully positioned for a likely strong surge just ahead and be buying further on any short-term setbacks in March. The small-cap and tech stocks should lead the next rally, with large-cap growth finally coming on much stronger."