Instability!

The economy and stock market are both showing signs of instability. There are good and bad indicators flashing at the same time. In the stock market, the old high technology leadership is not leading. Artificial intelligence was the driving force last year, but so far, that is no longer happening. Industrial recovery is a new theme, but this doesn’t seem to be that strong. Healthcare is another one, but it too seems to provide weak leadership.

A broadening of upside participation has been broadly predicted, and that does seem to be happening. Small and mid-caps have come alive, but these seem to be catch-up trades rather than new leadership. A market can advance along a broad front for a while, but sustained uptrends need leadership. What category or sector will emerge? That is unclear.

Leaderless markets are more vulnerable to setbacks. There is no assurance of that, so we are maintaining a steady posture. We are looking to see if industrial and economic recovery has legs. In the meantime, we are adding some special situation companies to portfolios. These may have recovery potential, be buyout candidates, or have other special circumstances that make them attractive. Once new leadership emerges, we will shift more assets to that sector or category. Stay steady my friends.

-The Lonely Bull