Expecting a Year End Rally

For now, I expect the current stock market advance to continue until the end of the year. The rally, which began on March 9, 2009, continues to avoid a 10% correction, although it has seen a couple 6-7% declines. Here's why I think the rally will continue:

Panic buying. Investors that have been out of the market and waiting for a correction have missed the biggest stock market rally since the 1930s. Soon some of these investors will get back in the market to avoid missing out on further gains, driving the market up more.

Incentives to buy are increasing consumer spending. From Cash for Clunkers to Home Buyer Tax Credits consumers are taking on more debt to do more spending. These government programs are giving the economy a short term boost and may even provide a psychological boost to help holiday retail sales.

Window dressing. Mutual fund managers will want to have good performing stocks in their portfolio at the end of the quarter. These purchases will drive up the stocks that have good returns this year.

For now, we will continue to stay invested in the market and, hopefully, benefit for the year end rally. However, should the market advance sharply in the next few months, we will definitely use the opportunity to sell and lock in some profits.

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This is not financial or investing advice. Please consult a professional advisor.

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