The S&P 500 and the Dow have recorded new highs, Q1 2013 earnings season began, manufacturing data continues to be mixed, geopolitical strife continues to create new headlines, employment data continues to whipsaw, and wait for it…those investors who have been in the market responded by looking for reasons to take profits and head for the closest exits. What…are you not being entertained? With individual stocks ascending into uncharted territory and a whole bag of news approaching from the edges; it’s a health indicator that the 2nd quarter of 2013, by and large, is eyeing a necessary and efficient pullback.
The bullish sentiment we have seen over the last few months looks to be taking a pause for the moment. Depending upon your risk strategy, pullbacks are opportunities to add to positions or take your profits and sit on the sidelines. As the markets have moved higher, smaller investors have started to move in, eager to participate. In my opinion, they are buying tops right now and may be best served to sit on the bench a little longer. You know that old saying, buy low-sell high? I’m seeing signs that the little guy is buying high and not realizing that his exuberance just might be very ill-timed. However, there will be those willing to take more risks. Right now I’m not one of them.
The economic data both home and abroad isn’t aligning with my expectations that current market activity should be noticeable more robust right now. The U.S. economy hasn’t achieved a ‘break free’ velocity to sustain itself, just yet. It’s still quite vulnerable and the real impacts of sequestration haven’t begun to be demonstrated in many sectors. The Eurozone remains in a recessionary posture, Kim Jong Un of North Korea continues to be an irrational man-child and the potential destabilizing of the world economies by aggressive monetary policies only aggravate and substantiate my analysis that this near term pullback is arriving just in the nick of time. Some hedging strategies for the risk tolerant and aggressive are my guidance for the moment. There are many bargains to be found, especially with dividend paying stocks, so take what the market is giving you.
I remain confident. As we move deeper into earnings season, I’m expecting some changes, especially due to the mix of policy changes in Q1 and I’ll be keeping a sharp eye on companies that show declining margins but are also beating earnings estimates; they will be getting the stink eye, to be blunt. After Tax Day, April is historically prone to exhibiting weakness in the stock market. A little caution, continued optimism and enduring confidence are my attitudes this week.
Have an outstanding week!
Dempster R. “Bobby” Cherry