I'm pretty much a buy-and-hold investor, although I do re-balance regularly. And if I feel strongly that the market it going to move in a particular direction, I will overweight to take advantage of it.So far I've been telling myself that 2005 would see modest gains in stocks and some rise in interest rates, but modest inflation. I'm starting to have second thoughts due to the action of the bond market. The rise in short term rates is what I expected and I think the Fed will stop when the Fed Funds rate is 3% to 3.5%. What concerns me is the action of the 10 yr. and 30 yr. bonds. Those rates are falling. On the positive side I interpert that to mean the bond market doesn't see an inflation problem. But now I'm worried the bond market is forecasting a recession, and that will mean another year of negative stock returns. Corporate earnings are still growing, though slower than last year and unemployment seems to be at least holding steady, but we also have a growing federal deficit and a weak dollar policy. So is the bond market right?
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