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Investors Have Spent the Year on an Emotional Roller Coaster

Industry ReportThe climate on this year’s trading scene has seen shifts from rapid rises to brief market corrections, then recovery. With less than two months left in the year, one market watcher is minding the pulse of the housing market and the momentum of the economy.

“All in all it’s not a bad-looking year, but it’s been a volatile year. It’s been an interesting year,” says Bill Martin, CEO of in Princeton, a subscriber-based investment-advisory service. “The market’s been all over the map and I think that’s a reflection of the fact investors are seeing, on one hand, corporate profits are still very strong, interest rates are very low, there’s a lot that’s good. But on the flip side, the housing market is slowing down and there are signs the broader economy is starting to slow down.”

The Dow Jones Industrial Average is one measure of the market that has been on a roller coaster ride this year. At the end of January, the Dow closed at 10,864.96 and rose through the end of April to close at 11,367.14. “Early in the year the market rallied really strong,” says Martin. That rally, though, was not sustainable. “It was an energy- and commodity-driven market,” he says. “Frankly, it was a very unhealthy market and a lot of speculation.”

This led to a “really intense correction over the summer where, again, everyone thought the economy was slowing down and they automatically assumed the worst,” Martin says. The spring saw the market skew lower with the Dow closing down at the end of May at 11,168.31, and at the end of June at 11,150.22.

Sentiments about the investing scene changed again with the seasons. “When we got to the fall, people started to realize [that] the economy is slowing down, the housing market is slow, but it’s not the end of the world either, so we just have to rally,” Martin says. Investors started to grow bullish again in late summer and into the fall, elevating the Dow Jones Industrial Average to 12,080.73 at the end of October. “It’s really hot and cold,” he says. “One day investors are excited about all the private equity money at the low interest rates floating around. The next day they’re worried profits are going to be down next year and you’ve got to get out of the market.”

Surprisingly, external factors such as politics have not played a major factor in the mood of the market. “You would think given the headlines with Iraq and the elections, politics would be moving the markets more than they are. It really hasn’t played out that way,” says Martin. “The markets don’t seem to be particularly worried one way or the other.”

Looking forward to 2007, Martin sees the potential for more of a tug-of-war in the markets as mixed signals continue to affect the investing scene. “Investors are anticipating the Fed will start cutting interest rates sometime next year,” he says. “Equities have been very hot over the last few months, yet the bond market has sent yields a lot lower, which is an expectation that the economy is slowing down.”

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