The Momentum is Shifting

In December 2010, we looked back at the stock market that had worked its way through the BIG election season and the change in leadership in the House that suggested that in the ensuing years, we could/would see the political environment return to a more pro-business theme - much like the years following the mid-term election in 1994.  At that time (in December), we also saw the S&P 5000 move up to a high of 1262, which was 90% above the low made by the index on March 9th, 2009.  Also, around that time, Barron's hosted a roundtable at which participants expected the economy to continue to look good through the first half of 2011 and then slow down thereafter.

However, at that time, we took the opposite path.  We said that we expected that the reverse would happen, and that we would see the first six months of 2011 be quite sluggish, including a potentional needed correction to the "Wall of Worry," that would then be followed by a much stronger second half of the year.  We see little reason to change that forecast at this time.

And as you remember, on June 13th, 2011, our Asset Allocation Matrix surprised even us as it moved its recommendation to its most bullish slot in our 50-slot matrix.  That kind of bullishness typically only occurs at the bottom of severe bear markets - in preparation of an upcoming massive long-term bull market.  So, you can understand our excitement.  And now here we are, almost one month later since we received that powerful signal, and we are still finding ourselves amazingly in one of those long-term optimum buying zones, which is very different from the prevailing opinion.

There is no way - that we know of - to forecast the exact shape that this stock market will take over the next few months, but we believe that this economy is at an important and bullish fulcrum point, and trying to be too cute on the short-term could easily be one of the biggest mistakes of your lifetime.

Don Hays

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