We thank Alan Greenspan for his steady, guiding hand all these years, but we have a bone to pick with him. We think Greenspan and his cohorts on the Federal Reserve Board deserve the lion's share of the blame for the stock market's lackluster performance in 2005. After all, it's the Fed -- not George Bush, nor a spendthrift Congress nor Mohammed al-Zarqawi, and not Hurricanes Katrina, Rita and Wilma -- that boosted interest rates with numbing regularity during the year. And if Greenspan and his successor keep this up much longer, 2006 won't be anything to write home about, either.

The case against Greenspan and Co. is hard to refute. Consider the rest of the big picture: The number of jobs keeps growing, and incomes are on the increase. Yeah, inflation is the highest it's been since 1991, but most of that is because of the spike in energy prices. As energy prices retreat, so will inflation. U.S. companies in 2005 extended their streak of double-digit year-over-year quarterly earnings growth to 14, and their balance sheets are in excellent condition. Overall, though, it's those nagging interest-rate increases -- and the fear that more are coming -- that have left investors "grumpy," as Gordon Fowler, chief investment officer of Glenmede Trust, in Philadelphia, puts it.

The sour note could last through winter and into spring as the Fed continues to combat inflation with additional rate hikes. But here's the good news: Eventually, the Fed, likely to be led by Ben Bernanke, will declare the battle against inflation won and call off the rate-raising regimen that has terrified investors. After 12 hikes in less than two years, the federal funds rate (the benchmark short-term interest rate that the Fed controls) is now 4%. Look for the Fed to raise the rate to 4.75% by early next spring. Why stop there? Because the last thing a new chairman wants to do is strangle the economy and precipitate a recession.

The stock market's stall in the face of steadily rising profits is making prices more attractive. Standard & Poor's 500-stock index sells at 15 times estimated 2006 earnings. That's the lowest it's been since 1994. Stocks are also favorably priced in comparison with current interest rates.

Andrew Lacey, deputy chairman of Lazard Asset Management, is among those who believe that stock prices diverged from corporate profits in 2005 because investors got too hung up on the Fed. Once the Fed makes clear that it's done lifting rates for now, says Lacey, investors will stop hyperventilating over every Fed pronouncement and be more inclined to buy stocks. He figures that blue-chip stocks will deliver returns in 2006 commensurate with profit growth, which he expects will be between 7% and 12%.

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