Although good fundamentals continued to fall into place, the stock market last week did not cooperate. There are many signs that the economy is picking up steam; two examples are recent manufacturing and retail data that came in stronger than expected. In the meantime, at least some professional investors sold positions just to lock down profits after what has been a particularly good year.
In spite of the selling last week, the damage was really pretty light.
Come the New Year, these same investors will have to re-engage, perhaps at even higher prices.
We expect the good fundamentals to prevail and see the stock market getting back on track.
Early signs from the Christmas selling season are strong. There are changes in patterns as to how and where consumers shop, but the overall impact will be the same.
The Federal Reserve is also prominent in the picture. Will or will they not taper their buying of Treasury bonds and mortgage securities. Agonizing about something that is inevitable seems a waste of energy. Markets know that withdrawing this prop to the economy is inevitable and we believe the impact of when it happens will be muted. The real strength of the economy is of greater importance and that continues to surprise to us the upside.