Are Our 2011 Stock Market Projections Still on the Right Path?

Five months under our belt in this New Year, and what do we see?  On January 3rd, we wrote our guesstimate of what 2011 was going to produce.  We noted that Barron's panel was expecting a strong first half, and then trouble in the second half.  However, we looked at our Asset Allocation Matrix and saw a slightly different message.

As 2010 came to a close, our Psychology Composite moved to P4, and it was actually very close to sneaking into the P5 ranking - next to the worst ranking.  This was NOT disastrous, since we had a very positive picture from Monetary and Valuation, but it did tell us that this bull market needed to repair some of those hairline cracks that were starting to appear in the "Wall of Worry."  So, our thoughts were that maybe Barron's pannel had once again gotten it a little mixed up.  We thought that the first part of the year would be lackadaisical, but the last half would resurrect the bull market. 

So here we are on June 6th, and we see our Asset Allocation is still showing the following.

Let me be perfectly honest, our emotions are reading the same "boo birds" that come our chirping anytime some headline turns negative.  Our emotional inclination is to wait until some good news comes along to turn on the all-clear light, but then I remember the many times before when following the "boo birds" was not the way to go - in fact, just the opposite path was best.  So as I look above, I see that we still have one "fly in the ointment" - Psychology at P5.  But arguing against that one fly is Monetary and Valuation - in strong bullish formations.  So, the Matrix says that long-term investors - as of the signal on May 23rd from the Monetary Composite - should be moving back to maximum exposure to equities. 

So, who are you going to follow, the "boo birds" or the Matrix?  Take your pick.

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

Don Hays

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