Are stocks bubbling over? Time to bail?

U-T EconoMeter panelists look at Wall Street prospects

Jamie Moraga, intelliSolutions

Jamie Moraga

Answer: NO

The Federal Reserve continues to pump roughly $85 billion of bond purchases to artificially inflate the economy every month, with no end in sight. This is better known as Quantitative Easing or QE3. The Fed will meet next month to determine whether the economy is doing well enough to persuade them to pare back QE3, keep it status quo, or decide to inject more money into the market. As long as the economy is sustained at this rate, the stock market shouldn’t right-size downward dramatically as seen in 2008-2009. But, if it doesn’t sustain, then we are likely to see the stock market and real estate bubbles burst again and also see a significant increase in inflation due to out of control spending and exponential increases in the national debt. That is likely in years, not weeks.

Gary London, The London Group Realty Advisors

Gary London

Answer: NO

While these are numerically new heights, they are not relatively new. A truly healthy economy would have seen an even higher stock market at this point. The market is actually reflecting an upward trajectory that is flatter than it might have been in a “normal” recovery because of nagging high unemployment. The Fed's continuance of its bond buying program participates in perpetuating this movement. The correction is probably not yet near as long as more people are employed next month than this, interest rates don’t rise too much and there is nowhere else to park money.

Jim Plante, Pathway Genomics

Jim Plante

Answer: NO

The markets may actually achieve new all-time highs as December has historically been an up month for indexes with the Dow Jones Industrial Average increasing 1.3 percent on average from 1910 to 2010 and the S&P 500 increasing 1.5 percent on average since 1929.

Norm Miller, University of San Diego

Norm Miller

Answer: NO

The best forecast of the next few weeks is always what we see today. We certainly will see a correction at some point, but many of the high stock prices are a result of money that otherwise would be in fixed income investments being pushed over into stocks. When quantitative easing stops -- something that seems perpetually extended -- and fixed income rates go back to normal, the stock market will face a huge correction. I had expected budget battles to create more havoc for the stock market, but investors seem immune to this or many of our fiscal problems on the longer term horizon.

Rick Sanborn, Seacoast Commerce Bank

Rick Sanborn


He is not participating this week.

Lynn Reaser, Point Loma Nazarene University

Lynn Reaser

Answer: YES

The stock market's meteoric rise does set it up for a pullback sometime during the next few weeks. Although small investors have come to the party late, as is usually the case, larger layers can be expected to take some near-term profits. Various stock valuation models give different results but generally suggest that equities have become relatively expensive compared ith earnings. On balance, the bull market in stocks is not yet over and alternative good investment options are sparse. However, look for a correction and smaller advance over the coming year, especially when the Federal Reserve begins to tighten monetary policy.


