This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Five Big Ifs for 2006

For investors, 2006 will start a little late this year -- about six months late, in fact.

Sure, we'll flip open a new calendar on Jan. 1. But as common as it is to think that a new investing year starts with the New Year, it's especially important to resist that way of thinking as we head into 2006.

Truth is, the big make-or-break events of 2006 -- the ones that will determine how different investing in 2006 is from investing in 2005 -- aren't scheduled to hit the calendar until later in the year.

What will determine whether the New Year is a happy one or something much less cheerful depends on the way what I call my Five Big Ifs for 2006 play out.

If No. 1: Has the Fed Overdone It?

If the Federal Reserve has overdone it with the series of interest-rate increases that began in June 2004, economic growth will be slower than expected or desired. The rate hikes that began when short-term rates were just 1% are now widely expected to end in 2006 with either the Jan. 31 or March 28 meeting of the Federal Open Market Committee.

Short-term rates, according to this scenario, will top out at 4.50% or 4.75%. The optimists among investors and economists believe that, at that level, rates will be just right -- high enough to fend off inflation but not high enough to stall the economy.

One group of pessimists says the Federal Reserve is raising rates too high for an economy that has derived much of its juice in this recovery from a massive increase in consumer debt and a big bump in housing prices. Take away those stimuli by making it discouragingly expensive to borrow, and the economy will slow down faster than anyone now expects.

Other pessimists say the Federal Reserve has moved too late and is too complacent. Inflation is back, they argue, and the Fed should pull its head out of the sand.

We should know what the Fed has wrought by July at the earliest, or September at the latest, because it takes about six months for the effects of a Fed rate move to ripple through the economy. A slowdown in economic growth would be bad for the stock market, but it could produce a bond-market rally. A trend toward higher inflation would likely tank both markets.

1 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,549.14 +149.47 0.91%
S&P 500 1,933.34 +29.33 1.54%
NASDAQ 4,392.3150 +76.2410 1.77%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs