Stock Market Support Is Fragile – 2 Indicators And 2 Strategies For Success If 2nd Shoe Falls

Monday, February 3, 2014

From January’s negative stock market performance comes the pursuit for the answer to “Why?” The search has produced the usual suspects: Overvaluation, reaction to 2013’s high return, long overdue “correction,” and sales/earnings disappointments (actual and/or outlook). Then there are the coincidental events: Fed confirming its taper policy and emerging markets/currencies raising havoc once again. Finally, there is the January decline (nee effect), seemingly casting a pall over the next 11 months.

Nice try, but the underlying fundamentals remain the same: Economy, business and consumers sound and improving well. Company earnings growth? Not so easy at this point in the cycle, but that’s not a surprise because, with normality back in town, competition has heated up. However, the key is that growth conditions are here: Capital spending is at work, corporate borrowing is rising (and banks’ willingness to lend is up), housing is hitting its stride, consumer spending this holiday season was fine (not for all retailers, but that’s normal), oil and gas prices are in check as is inflation overall, students are actively applying for colleges next fall, states and local governments are recording nice gains in revenues, vacations are being planned, etc. etc.

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February 2014