Gail Dudack on What's Ahead for the Stock Market

The veteran strategist thinks the markets have hit bottom, but the buy-and-hold era is over. And don't expect full recovery anytime soon

Gail Dudack has spent decades deciphering patterns in market moves. At Dudack Research Group, a division of Midwood Securities, she mines market data to find clues to future gains. She figures it could take until 2016 for the Standard & Poor's (MHP) 500-stock index, now at 858, to surpass—and remain above—1550, putting it safely ahead of its 2000 peak. Amy Feldman asked Dudack about her outlook.

You're expecting seven more years of this?

That seems a long time. But we have gone through periods before where the market gets ahead of itself and then corrects because of recession or a series of recessions. Then you have a sequence of bull and bear cycles before you get a bull market that's a sustained advance. The good news is that while we are in a period of weak market performance, we are nine years into it. In my view, we've seen the lowest low of that sequence, and we're likely to have several more cycles before we get a sustained bull market. I would not be surprised if we had another correction of 10% to 20% from higher levels.

What does this mean for investors?

We had been in what was considered a buy-and-hold market. We had been in a long cycle since 1982-83, and with a few bear cycles in between there was a pretty steady advance through 2000. I think that buy-and-hold period is gone. Investors need to be more aware of when the market is getting ahead of itself or is providing a great opportunity for a 6- to 12-month period. If you want to buy and hold, you need to be clear that what you are buying offers total return. So dividends have become much more valuable, and investors need to be sure they are buying companies that can weather this extended consumer malaise.

What's your economic outlook?

I'm optimistic that we saw the worst of the economy in the first quarter. But the slowness of the recovery will be a disappointment. It will be a roller coaster, as parts of the economy recover and other parts slow down. But the stock market free fall, with a complete lack of confidence—I think that is over. Earnings are coming in better than expected—that is really good news. I think we have found the floor.

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