Posted At : February 22, 2010 2:29 PM
Market Update-Correction Over, For Now
On the shorter term, the stock market looks incredibly strong. There is a real tug-o-war going on with investors on whether the recovery is for real. I wrestle with the same issues. My head doesn’t think it’s sustainable, my heart doesn’t feel it can be continued, yet the economic data continues to show not only improvement but real growth. That’s why it’s so important to step back from the emotional aspects of managing your own money and look at it objectively.
The current correction has made pessimism soar. Roughly two thirds of global markets have retreated 10% or more. Seventy five percent of domestic stocks are trading below their 50 day moving average. And the majority of investors and advisors are expecting a much larger pullback. For the past three weeks the percentage of bullish advisors, according to Investors’ Intelligence, dropped into the mid 30% range. The last time we had three weeks of such weak readings was the final three weeks of March 2009. And over 40% of advisors believe we are entering a full-fledged correction, the highest since 1983.
Very simply, the majority never gets it right. Pessimism was at record lows when the market bottomed in 2009, and optimism was near its all time highs when the market peaked in 2007. Given this fact, and that only 30% of the 2009 stimulus has been spent and 70% of the spending fiscal stimulus and roughly 56% of the tax cut fiscal stimulus are still in the pipeline, the market is going higher. Even with an increase in the discount rate today, the Federal Reserve continues to forecast that rates will remain low for the foreseeable future. This is bullish for stocks….although not forever.
Investors must walk a fine line: Take what the market gives you when it gives it to you and protect yourself from future inevitable catastrophes. At some point this bubble is going to burst and the pain could be worse than last time. But investors can’t sit in cash or CD’s for long as they are guaranteed to lose purchasing power. One must find the right strategy that participates in the ups but protects in the downs. Being lazy with a buy-and-hold (buy-and-hope) strategy and living with it through the downs or just sitting out waiting for the apocalypse will prove catastrophic for investors. Success requires a tactical approach, to invest with your head and be the expert or hire one. That’s where we can help.
Regards – Keith Springer
Radio host of Smart Money with Keith Springer