Another Step Forward in the Stock Market
Along with a lot of volatility and drama, 2010 brought us another positive year in the market. After selling off during February, the market surprised most investors and reversed and rallied hard through mid April. At this point investors moved from fear to greed with most becoming very optimistic.
Their optimism was dashed by five months of back and forth volatility. European markets were in turmoil with Portugal, Ireland, Greece and Spain leading the way down. In May, the Dow Industrials suffered its biggest one-day point drop ever. The "flash crash" brought a high level of fear and uncertainty back into the market.
Many forecasters talked about another recession. They were convinced that the dreaded "double dip" was just around the corner and would be the next shoe to drop. The daytime talk shows recommended that everyone run for the hills. As a result, the markets spent the next five months in turmoil, seesawing back and forth with swings of at least four percent up or down each month.
With the financial meltdown of 2008 fresh in their minds, investors mistakenly looked in the rear view mirror and assumed the worst. They withdrew about $80 Billion from domestic growth funds and put $250 Billion into bonds.
About the time many investors gave up on stocks and sold out their positions, stocks spent the last three months of the year in rally mode. It was the strongest December in 20 years. In total the market increased 20 percent off of the July lows. Bonds, now that everyone wanted them, spent the last quarter going down in value.
The government intervention trend continued forward in 2010. European governments moved to bail out and stabilize Portugal, Ireland, Spain and Greece. Bernanke and the Fed moved to buy $600 Billion worth of treasuries to keep interest rates low in the U.S., which in turn props up stocks and bonds. The Bush tax cuts were extended for two more years. Each of these actions contributed to the second half rally.
Going Forward
We are relatively optimistic about 2011 at Paragon Wealth Management. Historically the third year of a presidential term is positive for the markets. The incumbent wants to get re-elected so they usually pull out all the stops in order to make the economy look good. If the economy looks good, then they look good. If they look good then they get re-elected. This is politics 101.
That is why the previously demonized Bush tax cuts were so easily passed by a left leaning administration at the end of the year. They want to do all they can to stimulate the economy for the next election.
Stock valuations are better now than they were at the beginning of last year, which is positive. This is a result of extraordinary corporate profits this year.
The only negative I see is in the short-term. Right now, too many people think the market is going up. I don't like to see market sentiment this positive. Ideally, we would see the market sell off early in the year. That would bring optimistic sentiment back down to more desirable levels and potentially set up a good first half for 2011.
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Any information presented is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. All opinions and estimates constitute the judgement as of the dates indicated and are subject to change without notice. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice.
Their optimism was dashed by five months of back and forth volatility. European markets were in turmoil with Portugal, Ireland, Greece and Spain leading the way down. In May, the Dow Industrials suffered its biggest one-day point drop ever. The "flash crash" brought a high level of fear and uncertainty back into the market.
Many forecasters talked about another recession. They were convinced that the dreaded "double dip" was just around the corner and would be the next shoe to drop. The daytime talk shows recommended that everyone run for the hills. As a result, the markets spent the next five months in turmoil, seesawing back and forth with swings of at least four percent up or down each month.
With the financial meltdown of 2008 fresh in their minds, investors mistakenly looked in the rear view mirror and assumed the worst. They withdrew about $80 Billion from domestic growth funds and put $250 Billion into bonds.
About the time many investors gave up on stocks and sold out their positions, stocks spent the last three months of the year in rally mode. It was the strongest December in 20 years. In total the market increased 20 percent off of the July lows. Bonds, now that everyone wanted them, spent the last quarter going down in value.
The government intervention trend continued forward in 2010. European governments moved to bail out and stabilize Portugal, Ireland, Spain and Greece. Bernanke and the Fed moved to buy $600 Billion worth of treasuries to keep interest rates low in the U.S., which in turn props up stocks and bonds. The Bush tax cuts were extended for two more years. Each of these actions contributed to the second half rally.
Going Forward
We are relatively optimistic about 2011 at Paragon Wealth Management. Historically the third year of a presidential term is positive for the markets. The incumbent wants to get re-elected so they usually pull out all the stops in order to make the economy look good. If the economy looks good, then they look good. If they look good then they get re-elected. This is politics 101.
That is why the previously demonized Bush tax cuts were so easily passed by a left leaning administration at the end of the year. They want to do all they can to stimulate the economy for the next election.
Stock valuations are better now than they were at the beginning of last year, which is positive. This is a result of extraordinary corporate profits this year.
The only negative I see is in the short-term. Right now, too many people think the market is going up. I don't like to see market sentiment this positive. Ideally, we would see the market sell off early in the year. That would bring optimistic sentiment back down to more desirable levels and potentially set up a good first half for 2011.
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Any information presented is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. All opinions and estimates constitute the judgement as of the dates indicated and are subject to change without notice. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice.
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