New Year Spurt Leads Market To 1.1% Rise!

The market started the New Year with a spurt leading to a 1.1% weekly rise. That is a good start to what we think will be another excellent year. If right, 2011 will be the third straight year of double digit gains, something that has not happened for quite some time. The news last week was light but did include job reports and retail sales figures. The jobs report was mixed and retail sales were lower than expected, but both of these areas still showed improvement. The recovery appears very much on track, but it is clear this recovery will take time. Corporate Earnings reporting begins next week and will gather speed throughout the next month. These earnings reports will drive market direction and we expect the positive momentum to continue. The stage is set for growth as corporate balance sheets are healthy and supported by a FED pursuing friendly monetary policies. We also expect money flows into stocks to rise in the coming year as the investor appetite for risk expands and money moves away from safe assets. We expect interest rates to slowly rise in 2011 and that means bonds funds could begin to lose value. If that happens, investors will begin to move some of that money back into stocks, and that will help drive the stock market higher. All in all, we are bullish for 2011 and plan to stay fully invested. Of course, the market will not go straight up and will likely remain bumpy from pent up fear that prevails from the recent market turmoil. In that light, we plan to stay fully invested, but will hedge occasionally to provide protection from those corrections when the market moves too fast. Volatility remains extremely low, which makes buying protection through options much cheaper. As for trading, we sold one stock last week for an excellent return, HealthSpring, a 55% gain. Long term we still like HealthSpring, but felt it was better to take these profits and move the money into another stock with even greater appreciatio n potential over the coming year. As we mentioned last week, take action now and reduce bond allocations and move that money into stocks and commodities to benefit from the next anticipated leg up of what is likely a longer term bull market.