September 2010

Cautious but not Bearish

In a rather dramatic turnaround from August's results, the S&P 500 navigated through the tricky September with its best performance for the month since 1939, up 8.92%. Our slower but more consistent results are currently posted on our Performance Page. Belying the predictions of many pundits calls for a sharp market drop, the market continues to 'climb the wall of worry' despite the many uncertainties as well as downright negative news. Based on the fundamental and technical research that I read (primarily BCA and Lowry), this market appears poised to chug along for another year or longer. Here are some thoughts leading to this conclusion.  

• With cyclical spending at such a low, but with growth and profit margins holding up, it is doubtful that the economy will head into a double dip recession.
• If the economy should falter, "helicopter" Ben Bernake stays willing and able to crank up the electronic printing press, easing interest rates even further and supplying more lendable cash to the banks. 
• Although the valuation of Emerging Markets are not what they used to be, the continued capital inflows should keep these markets outperforming developed markets.
• Buying power is at a high, and selling pressure is at its lowest point since August of '07. In the 77 year history of Lowry research, expanding buying power and diminishing selling pressure has never been seen at market tops.

  To be sure, the market is highly overbought in many short term indicators, and while a short term correction is possible and even welcome to eliminate these overbought readings, it is highly unlikely that any near term pressure would turn into a rout. I remain cautious going into another tricky month but in no way am I bearish. 

 

-Joe