Weekly Stocks Recap

Market Pulls Back!

Last week was tough for the stock market with the S&P 500 declining 5%, dropping the Year To Date return back in negative territory. The market pullback is not all that surprising after experiencing two months of unusually large gains. The reality is the market just got a little ahead of itself. As we have said before, we think it is healthy for the market to take a breather over the near term, 30% plus gains are just too much over a two month period in a declining economy. Yes, the economy is still in decline, although that rate of decline has slowed. Retail sales came in lower than expected last week, a big disappointment for the market. Consumer spending will likely continued to be challenged with unemployment fears and overriding concerns regarding economic health. Industrial production is still declining, although recent reports suggest the pace of that decline is slowing. Reports next week will provide more light on Housing, but a recovery in this sector just does not seem near. All in all, this is still a declining economy, although the positive is that the pace of that decline is slowing. That is good news, but we also suspect that economic recovery will be modest and slow when it does come. First quarter earnings season is almost over, and while most companies have treaded water, results show just how deep the economic impact has been.

Market Beating Foresight

We are not surprised nor particularly concerned with the market pullback last week. Frankly, the stock market had gotten a little ahead of itself. The financial sector led the decline, also not surprising given the remarkable gains from that sector over the prior two months. The economy is not in recovery mode, it is still in decline. Investors have been encouraged with the slowing rate of decline, but it is clear that the economy has not yet reversed course. We expect the stock market remain choppy and trading range bound over the next few weeks. However, we look at the recent pullback as a buying opportunity. For investors that have been sitting on the sidelines, now is an excellent time to increase stock allocations. As we mentioned last week, we too plan to increase our equity allocations now that the bulk of 1st quarter earnings have been released. We think that investments made now and over the next few months will be very rewarding over the long haul. We remain optimistic on the direction of the stock market, despite the market volatility last week. We expect incremental net inflows into the stock market to increase and that the rate of those increases likely will escalate over time. Net cash inflows into the market will drive the demand for stocks and their prices higher over the coming months. All in all, we remain optimistic, and expect an overall positive bias in the stock market trend over the remainder of this year. However, we also hope that we experience a more moderate and sustainable market growth than what we have had over the prior two months. Moderate growth will make it easier for participants to stay invested and will reduce market volatility. Confidence is critical towards turning around this economy and stock market. Reducing the fears that consumers and investors carry, will go a long way in restoring positive momentum in the economy and stock market.

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