As I flew back home from a recent business trip last week, I read a copy of Barrons. The issue, What's Ahead for Stocks, focused on forecasts for the rest of the year from their top Wall Street experts. I haven't been watching CNBC much lately so I thought this issue of Barrons would give me an idea of what the Wall Street consensus is for the market and the economy.

It was bullish, of course, because experts hired by Wall Street are always bullish. It's their job to sell you on buying into a mutual fund and holding on no matter what is coming. For the most part, these experts saw "muted gains for the rest of this year, along with a dip in inflation, setting the stage for a stronger run by the bull in 2007." As you know, I've been bearish on the market going forward so I find it helpful to sometimes examine the counter arguments in order to make sure I'm not missing anything.

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To access today's WSW Power Investor comments with an in depth analysis gold and its recent decline click here: WSW Power Investor for 09/11/06

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According to Barrons, "the bullish case for the stock market is built on three arguments, that inflation has peaked, or soon will; that the economy, although softening, is still resilient, and that investors will warm to stock anew as concerns about both recede."
Wall Street and CNBC darling Abby Cohen of Goldman Sachs (the lady who said 'buy' all of the way down from 2000 to 2003) claims that the US is "entering a second, more comfortable phase of the bull market." She claims that stocks will rise as "incoming data points to strong economic growth and lower inflation."

Barron's sums up the views of its experts by saying, "Goldilocks is back, as evidenced by the Street's expectations of an economy that is neither too hot nor too cold, but just about right."

A slight dissension comes from Francious Trahan of Bear Steans who thinks the S&P 500 will rise 11.5% in 2007 after a quick dip into the end of this year as the economy has a temporary cooling period. But then, "when the market turns the corner, stocks come back with a vengeance."

Barron's acknowledges the fact that "from the last rate increase in a tightening cycle to the first rate cut in the next, easing stretch, the stock market has traditionally stumbled." But don't worry, Citigroup's Tobia Levkovich says this time is different because "stocks could rally once it's clear the Fed does not intend to raise interest rates."

Of course, I think most of this is wishful thinking. Well, it's more like propaganda. I'll go with historical trends of how the market moves during this phase of the interest rate cycle instead of the hope that this time it is different. It also seems likely that the economy will falter much more than these analysts expect it to due to the cooling housing market. I didn't find their arguments convincing. I see the current market environment very similar to the one we saw in the summer of 2000.

I think the May-July dip in the Nasdaq was an important turning point in the market just like the dip in April of 2000. The experts back then were also predicting a "soft landing" in the economy that would morph into a super-rally once everyone realized that the Fed had finished raising rates. Of course, in 2000 everything fell apart during the Fall.

The only sectors that bucked the bear market that Fall were drug stocks, health care, tobacco, and utilities. And right now, they are the most bullish sectors in the market. The same sector rotation pattern is repeating itself. Gold stocks made their bottom in October of 2000 and have been in a bull market ever since.

Of course, the big question right now is what happens with Gold and the Dollar.

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This article continues in WSW Power Investor. Click here: WSW Power Investor for 09/11/06

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