Acceptance of Reality

As a piggyback on to my colleague's, Chris Puplava, market observation from yesterday “Being Right or Making Money: Don't Fight the Trend,” I am also of the opinion that those on the sidelines are not listening to what the market is telling them. Since the beginning of September, the S&P 500 index is up 13.70% which to some is a years worth of returns in 3 months. If you have been on the sidelines with your investable money with concerns about a double dip recession you have missed a years worth of compounded returns. And with 2010 nearly done the next question everyone asks is; “is the market for real and how do I invest for 2011?”

The answer to that question will be different for each individual and will be different based on what you consider to be your investment objective. However, we can take a look at some of things that are driving the recent advance in the US Markets and draw conclusions from there. I have told several of my clients in the last 3 months that it has been the underlying things that I see and read regarding the US and Global Economy that keeps me constructively bullish on the markets into 2011. Here are just a few of the research bullet points I have followed since December 1, courtesy of our friends at Ned Davis Research:

These are just the bullet points, but you can get the gist of them:

• Global market outlook for 2011
  • Advance to continue into 2011
  • Conditions better than sentiment would suggest
• Tax Cut Extension and New Stimulus Bill
  • ISM expects recovery to strengthen in 2011
  • Better personal finances lift consumer attitudes
  • Pulse of commerce picks up
• Another use of cash: M&A has picked up
• Manufacturing and services indicate continued global growth
• Boosting beta within industrials
• Increasing US and global equity exposure
• Steady manufacturing growth
• Labor market trends supporting self-sustaining economy
  • Consumer optimism picks up
  • Fed’s Beige Book confirms recovery
  • Light vehicle sales top 12 million annual rate

Clearly there are plenty of risks that cannot be ignored. The fiscal issues plaguing the Eurozone have been front and center, along with concerns over China’s plan to slow down their economy and it is prudent to keep these concerns on the radar. However, I expect that as long as economic data remains constructive, as seen above, these risks will remain as secondary level concerns. I still think that sitting in cash is the biggest mistake investors and many newsletter writers are making today. As stated by many in the past, including my colleague just yesterday, “Don’t fight the trend, but stay open minded and nimble.”