Lacking Conviction

Investors certainly feel that the economy is not nearly as dire as they were led to believe a couple of months ago but are still very uncertain about the future. One day, recessionary concerns predominate, and the next, relief that it may not be that bad. So the stock market bounces around as traders seek guidance from every scrap of data or commentary. This is certainly no way to build wealth. Investing, by its nature, requires some optimism for the future.

Thankfully, the underlying market action is telling us that a brighter, better day is coming. Money flows are positive for most stocks. Most of their prices are above their 200-day moving averages. Even bad days seem to have less follow-through as there is an appetite for putting money to work. There is still plenty of it on the sidelines. A recent reading of hedge funds shows near record cash balances. A bet against consensus among this group has often been a good one.

However, expect more volatility. Maybe it is inevitable after the recent run-up. This could simply be a period of digestion. No one knows the future, but the Bull has written much of this year that it is probably far better than the prevailing fears. There is still stimulus and liquidity in our economic system. Even though the Federal Reserve has been tightening, it is nowhere near restrictive. With the recent government action on student debt, there is even more stimulus and liquidity coming. Stay steady my friends.

El Toro Solo