First Quarter Review

Over the first quarter of this year, the market has faced some pretty intense headlines - a Tsunami, a potential nuclear meltdown, the overthrowing of a regime in Egypt, the threat of a US government shut down, and military strikes on Libya.  Yet, in the face of this uncertainty, the stock market and our portfolios continued a bullish advance.  In fact, at the end of March, the S&P 500 Total Return Index had risen 5.92% over the first three months of this year.

While this market strength has surprised many pundits, at Hays Advisory, we have been focusing on the powerful bullish forces that should continue to drive this market.  One of the biggest drivers is the current condition of our monetary model, and the basket of indicators that we follow suggests the potential for very favorable market returns going forward.  While inflation in commodities and producer prices have been slight negative inputs recently, as well as the recent climb in interest rates, the large majority of our monetary indicators are still in great condition and the combination of these factors results in our current Monetary Composite ranking of M2 (our second best ranking). 

Furthermore, we continue to see investors and corporations flush with cash.  Additionally, bonds, the investment of choice over the last two years, are starting to experience outflows.  According to Lipper, $300 million has flowed out of the High Yield Bond ETFs over the last few weeks.  While fund flow data has not been published for the first quarter yet, my guess is it will reveal that investors are finally starting to consider stocks.  And with trillions in cash earning next to nothing and bond investors starting to flee, we believe we are in the very early stages of a shift to equities that could drive the stock market for years to come.

Because it is still so applicable, let me finish by quoting from my year-end portfolio review from January of this year.  "So, I look forward, with dreadful anticipation, to the future events that will shape our world and rattle our markets in 2011...but we will trust our time-tested model to guide us through."

To read today's complete Market Comment, click here.

Jeff Hays

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