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Get Ready for Another Late Rally

Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on . He's also a regular contributor to RealMoney ,'s subscription site. If you'd like to see all of Jon Markman's RealMoney commentary, click here for information about a free trial.

Despite hurricane-force winds, tremendous corporate profitability, a strong economy and buoyant investor sentiment, the stock market has gone absolutely nowhere this year.

Weird, huh? You could have slept through the first three quarters of the year and not missed a thing. The S&P 500, representing large U.S. companies' shares, is up less than a quarter of a percentage point, while the Russell 2000, representing small companies' shares, is up roughly 0.6%.

Now here's something that's maybe even a little stranger. The market was in exactly the same shape last year at this time -- precisely flat. The S&P 500 opened for business on the day after New Year's in 2004 at 1111 and closed on Sept. 28, 2004 at 1110. The Russell 2000 opened 2004 at 556 and closed Sept. 28, 2004 at 558.

All that lateral travel was just about to end last year at this time, as small stocks ultimately rallied 15% in the last quarter of 2004 and large-cap stocks rose about 9%. And the same is probably about to happen now, with a diabolical twist.

A Sea of Change

With the caveat that it's easier to become U.S. chief justice than to foretell markets, I will venture out on a limb and forecast that shares are about to enter a short period of intensely nauseous churn but will end the year a tad higher -- perhaps as much as 5% higher. Nothing to write home about, but better than a poke in the eye with, well, a sharp stock. After that, 2006 will hit investors right between the eyes, leaving them with losses in the low double digits.

In boaters' language, we are about to witness a battle between wind and tide. The wind blowing U.S. companies forward is strengthening global demand for electronics, houses, toothpaste, movies and furniture because of the materialistic aspirations of emerging markets' middle classes. This is not speculative blather about China, India and South America. It is real, and it is happening.

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