Markets: Up or Down ?

Finally six worst months in recent market history are over.With various cross-winds, markets and pundits are not sure where markets are headed in next 3 and 6 months and whether this year would end in positive or negative column. So let me throw in what I Think:

Markets are facing following headwinds:

• Oil price near $150 and possibly going as high as $170. In general commodities reaching all time highs
  
• Housing markets still in slump
• Credit crisis far from over with some more large write-downs coming and potential repeat of Bear Sterns type collapse
  
• Inflation reaching well beyond comfort level of common man as well as central bankers
• Geo-political uncertainties as well as elections on key countries like USA, India
  

While these headwinds are pretty strong, there are some important factors which may play in favor of markets (tailwinds:-)

• Markets are already down by close to 20% and there are trillions of $$ on sidelines waiting. Very soon value investors would jump in and provide markets a floor above 10000 (Dow index)
• Even though oil is in every day's news, once it crosses $150-170, there is not much upside left and only direction oil can go is down providing support for markets
• With some banks like UBS and even insurance players like Radian (worst performer of my Model Portfolio 2008) providing some indication that we may be near bottom of credit crisis providing some hope to financials
• Inflation is still high but with economy slowing, it should remain under control through rest of year providing some wiggle room to central bankers to hold the rates at current levels
• As summer progresses, political landscape would start becoming clearer (already futures markets is predicting that Obama would be next president). In anticipation of this, markets would start adjusting 6 months in advance
  

In my opinion, in long-term, factors in favor outweigh factors against the markets (though in short term, it is exactly reverse), I am expecting markets to go upwards but I am doubtful if markets would be able to close in positive column. For that to happen, Dow would have to climb nearly 2000 points !

Have a happy Independence Day Weekend !

/Shyam