Broad Based Rally Pushes Market Up 4.2% YTD!

The market made most of its gain on Tuesday and held on through the rest of the week despite the turmoil in Egypt and growing Middle East concerns. Strong earnings reports have provided the market sustenance as the vast majority of reporting companies have exceeded both earnings and revenue expectations. Even retailers reported better-than-expected monthly sales in January supporting the notion that consumer spending is improving. Jobs growth also showed increases last week, but were below projections as hiring remains sticky. By most measures, the economy is showing improvement and moving in the right direction; although some sectors remain stubbornly slow to respond. The FED is providing an accommodative stance and we see no signs of that changing in the near future. The stock market advance since September has foreshadowed the improving economy. However, for perspective the broad market has risen sharply since September last year to now over 25%. That is a big move , and a minor correction would not be surprising. Many pundits are calling for a 5% correction, and that too seems reasonable to us as the market will not go up in a straight line. Volatility also fell sharply last week, perhaps a sign that investors are becoming more complacent as stocks move higher. We are sitting on some cash in our portfolios and plan to sit mostly on the sidelines again this week given the market uncertainty and are concern that a minor correction may be near. We may take some profits where we can and buy some protection given low volatility over the near term. However, this is certainly not a time to exit the market or sell stocks that you want to keep even under concerns of a looming correction. This is a longer term bull market and investors should be buying on pullbacks. We are just sitting on our cash a little longer and being slower to invest since we think there is a decent chance the market might correct in February.