After a normal pull back in January we are almost back to where we started at the end of December. I’m always amazed when investors and clients experience a pull back from an outstanding year and their nerves get a little on edge and they worry about a big downturn. These are what I call the “Nervous Nellie Club” and when the phone calls start I know that the market is bottoming. This is exactly what happened last week. As I have stated before 5% corrections are a normal occurrence and happen with regularity since 1945.
This is an unusual time in the equity markets. One of my basic disciplines is the psychology position of the retail investor. As of now there is still a lot of positive climate in the markets going forward while valuations are very attractive for entry points and monetarily the Fed is very accommodating. The usual practice is that when everyone wants in I start taking profits and vice versa. However, the market continues its’ bullish run.
If we go back and look at 2004 the SPX ended the year at 1211.92 and the conditions were similar on the three disciplines mentioned above. As of this writing the S&P is at 1840 and in a bullish trend. There is an old saying the trend is your friend and since history has a way of repeating itself the bull is still on his feet.
Volatility will continue and it will test the nerve of some investors but it will probably settle down as we approach the middle of the year and moderate gains will be experienced. If you are properly diversified and rebalancing this volatility begets the trend is your friend theory.
As many of you know I have written a book which should come out in April. Check our web site for updates and excerpts to perk your interest.