MARKET SENTIMENT - 2012/03/31
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We at HRA would like to say that for a long-term strategy, buying low-priced stocks that are showing good growth potential should be able to produce in any environment, and we also do not believe that you can effectively time the market.
The U.S. market has had its best quarter for stock prices in a very long time, despite continuing worries about oil prices going up and the Euro-zone debt crisis.
- The S&P 500 Index is up 12% YTD.
- HRA’s Favorite 30 is showing a YTD gain of 16.04%
- HRA’s TINY 6 Portfolio is showing a 17.36% gain for the first quarter.
- (Note: these portfolios are theoretical in nature, use some assumptions that do not mirror actual trading, and do not include costs of investing, such as commissions, holding costs, etc.)
The HRA OU-P factor, which measures market sentiment and the level of over- or under-pricing apparent in the market, is showing that the market remains under-priced by 12% based on our 800 stocks, even after the S&P 500 return of 12% for the last 3 months. We are starting to see some of the money that has been on the sidelines come into the stock market, especially after comments made by the Federal Reserve Chairman, Mr. Bernanke, reiterated the Fed’s position of maintaining a stable money environment. Inflation is beginning to show up in core purchases, and we’ve seen the dollar dip recently in value.
In this environment, with artificially low returns on government bonds, municipal bonds, and CD’s, we see the willingness of investors to take on risk increase, hence more money is coming into the stock market.
The stock market despises indecision and the unknown. Several factors are helping boost the stock market after dragging through 2011.
First, as we roll through the primary campaigns for the Republican Party, the delegates are piling up for former Governor Mitt Romney, and we are seeing more high-level Republicans (such as former President George H.W. Bush) come out and endorse Mr. Romney. With more of the party backing a single candidate, the issue of a divided party is waning. This gives strength to the Republican campaign to unseat President Obama, who has been raising money at a startling rate, planning to use all of this money to defeat the eventual Republican candidate.
Secondly, the Supreme Court is debating whether the health care reform bill referred to as “Obamacare” is unconstitutional, which may effectively kill the bill. The cost to businesses as well as individuals has been a major concern in trying to understand the implementation of this huge health care bill, while estimates of the bill’s cost to the taxpayer continue to skyrocket.
Coming in a slow third have been several gaffes by President Obama’s administration lately, especially in seemingly not supporting domestic oil production (i.e. Canada to Gulf pipeline), which has been the subject of much debate of late. With oil prices increasing, the domestic economy is being affected massively, as is the American consumer.
Additional political pressure is affecting the global markets as Iran increases its belligerent posturing, the unrest in Libya is becoming a world focus, with world reaction to both situations including additional embargoes against the countries.
And yet the most recent report of consumer sentiment shows the highest level of confidence that we’ve had in several years.
If an investor has been out of the market the last 6 months, is it too late to get in? HRA feels that the market is still under-priced, earnings growth is still possible, and the inflation rate, though rising, is not supporting higher interest rates at this time. This makes owning stocks more attractive than holding CD’s, or Treasury Bills, while real estate is beginning to see a small comeback.
On the more personal side, all investments should be based on the individual investor’s risk tolerance – if you want to be aggressive, and can live with volatility over the short-term, then investing in stocks over the long-term can provide increased returns along with that higher level of risk.
Remember, not all investments are suitable for all investors – check with a financial advisor if you plan to make major changes in your portfolio. Also, remember that historical returns are not predictors of future returns, and HRA does not believe that you can time the market. With those qualifiers, we at HRA wish you luck in your investing, and are here to answer your questions!