Getting The Stock Market To Rise

- Alan Lavine and Gail Liberman

It's summer. Typically, the best periods in the stock market are from November through April.

Seasons affect the performance of the financial markets. But time of year is only one small factor influencing stocks. Investors must be enthusiastic about buying stocks because they anticipate higher corporate profits.

Investment cycles also are important. The stock market typically does well in an election year, but underperforms during the first term of an elected president.

Consumers also must feel confident that their jobs are secure and their wages are rising. If consumers don't feel positive, they spend less. Lower consumer spending reduces corporate profits.

Currently, the economy is growing, but the stock market isn't.

Profits of the companies that make up the S&P 500 stock index have risen 44 percent over the one-year period ending in March 2004. The problem: Fred Alger, chief market strategist for Fred Alger Management, New York, says economic growth hasn't affected working people.

"Publicly traded companies are generating record profits, but workers are not benefiting much," he says.

The reasons for this mess: Even though more people are going back to work, wages haven't risen. While many companies are experiencing double-digit earnings growth, the average hourly earnings are up only 2 percent. And working income that they can spend for goods and services is up only 3.9 percent.

"The gap between corporate profitability and wage growth may explain why many Americans think the economy is not doing as well as it is," he says.

Alger says another problem is that companies are using information technology to find lower-cost labor worldwide in manufacturing and services businesses. As a result, Americans either are losing jobs, or they're not getting sufficient pay raises.

The bottom-line: Because people personally don't believe the economy is growing, they're not rushing to buy stocks.

On the plus side, inflation is under control, he says. The rise in the cost of goods and services will not be dramatic.

Consumer confidence also is rising. Wages and salaries are increasing.

U.S. manufacturing activity is surging because companies have cut costs.

Iraq and the election are getting under control.

Overall corporate earnings look strong.

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).