Is the Worst Over?

The stock market is behaving better. The rallies are coming on stronger volume and the selloffs on lighter volume. The market bottom has held, and each attempt to start a new bear leg down has failed.

The news headlines continue to be poor. But that is to be expected during the early stages of a bull market. Employment is a lagging indicator. And government revenues, especially at the local level, will continue to be poor for the next few years. But early signs of a recovery may be showing up at retailers and restaurants.

Consumers have more money in their pockets now that gasoline is under $2. That's almost a $3 drop from the peak back in early Summer. I believe that high energy prices was a major contributor to the consumer cutting back on spending. Now the stimulus package that keeps on giving is lower energy prices. 5 year lows on gasoline? Nice!

Of course, it may not be clear sailing for the stock market. Remembering how the 2000-2 bear market ended, we saw a low in September 2002 and then rallied, but then retested the lows in March 2003. Could we see something similar?

The things I could see derailing an economic recovery at this point are increasing taxes, coming down on free trade, and increasing regulations. President-elect Obama has reversed course from his campaign promises and seems unwilling to raise taxes on the rich and wants to cut taxes for the rest of the folks. He's also said he no longer favors an oil profits tax. My guess is that with the folks he is surrounding himself with, he'll keep free trade alive.

I remain bullish. I think this is just a recession and though it is worse than the last one, we will come out of this. We may have already.