Rate Cuts Will Soak In

The following is based on my 2008 forecast sent to subscribers over the weekend. If you’d like to read the entire forecast, please sign up for the one-cent one-month trial of The Kelly Letter.

The market is in for more volatility until the Fed’s rate cuts soak into the economy. The good news is that the Fed started cutting four months ago. The bad news is that it hasn’t cut enough yet. It will catch up. I expect that we’ll see some fine progress this first quarter.

Stocks are reasonably priced. The earnings yield of the S&P; 500 is 40% higher than the yield on the 10-Year Treasury. In all six other periods when stocks were this cheap compared to bonds, the market was higher one year later.

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