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Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Bulls & Bears
This past week’s Bulls & Bears:
• Gary B. Smith, RealMoney.com columnist
• Pat Dorsey, Morningstar.com director of stock research
• Tobin Smith, ChangeWave Research editor
• Scott Bleier, HybridInvestors.com president
• Mike Norman, founder of the Economic Contrarian Update
Trading Pit: Santa Claus Rally?
The Santa Claus rally! It’s made December a month to remember. In fact, during the last two Decembers, the Dow has gained over a thousand points. Is another big time Santa Claus rally on its way?
Tobin Smith: We could see the Dow gain 500 to 1000 points. This is the only bull rally we’ve ever had that P/E ratios (price/earnings ratio or basically the price tag for stocks) are coming down. Earnings are growing faster. Hedge funds need returns and mutual funds don’t want to miss a move higher.
Gary B. Smith: We've already had the rally and I think we’ll move 500 to 1000 points lower! The stock market has moved up so quickly since October that stocks are severely overbought. In fact the same exact thing happened last year. Stocks ran up until about mid December and then sold off. I expect to see the same thing this year.
Mike Norman: We’re following same pattern that we’ve seen in recent years. First there’s the tax loss selling in October. That selling dries up and then there’s a rally. We go into the holiday season and it peaks out. The driving force behind this rally has been share buybacks and acquisitions. We’re not seeing a big expansion in business investment.
Scott Bleier: The Christmas rally is over. Big cap stocks have been heading higher because mutual funds have been spending money as the year comes to an end. Other people are chasing those stocks. But that’s not a good reason to buy stocks. That’s a good reason to sell stocks!
Pat Dorsey: Mike made an excellent point that the stock market’s gains have been fueled by buybacks and acquisitions. Profit margins haven’t been expanding and can’t expand much more. That is going to limit earnings growth. The market is reasonably attractive and I don’t think we’ll see a massive rally to end the year.
Time to go stock shopping! Could these retailers make you a lot of money this holiday season?
First up, the world’s largest retailer Wal-Mart (WMT). (Wal-Mart closed on Friday at $50.49.)
Gary B. Smith: Bear. The stock has already had its great run up. It’s now right at resistance. Time to sell.
Pat Dorsey: Bull. Wal-Mart is still the best in the business. I’ve been recommending this stock for the past year and it’s still at attractive prices. Buy it now.
Scott Bleier: Bear. It is still so huge. Where can it go from here? If the company grows even more and puts stores everywhere in China, then the stock will go up.