One year ago, we experienced a summer pullback in the equities market and a deceleration in the economy. As fall 2010 was ushered in, we began to witness an up-turn in the markets. This up-turn evolved into a strong rally, which lasted for almost nine months. Fortunately, we were well positioned and realized some very nice profits.
We think there are a lot of comparisons between the summer of 2010 and 2011. First, we see the same array of indicators lining up now as we saw a year ago. Does that mean we will experience the same 4th quarter results as 2010? Obviously, we will not know that answer until early 2012, but there are a lot of “under the surface” positives that people are simply choosing not to see.
As we have often said, ultimately at the end of the day, markets are driven by one thing and that is corporate earnings. At closer glance, we see many positives on the earnings front:
1. Second quarter earnings reports were very strong but, maybe more importantly, most companies have continued to hold their guidance. That translates into the fact that these companies believe they can hit their 3rd quarter projected earnings.
2. Corporate insiders have been buying a “ton” of their company’s stock. The reason is obvious; they believe they can make money buying their own stock at these levels.
3. Additionally, most leading economic indicators are still pointing to positive growth for the remainder of 2011.
History tells us that, when markets suffer a shock and the technical picture is broken, time is needed for them to heal. So while we fully expect to see more choppy waters in the short-term, we believe that a strong run by year end is
forthcoming.