Markets ended the year on a strong note. Investors did not want to sell and take a taxable gain before the end of the year. Since we rallied strongly into year-end, I am expecting a slight pullback as investors trim back on the stocks that became over allocated in their portfolios. I am only expecting that for a couple of weeks with some small technical bounces that don’t get any traction. SP500 4700 is the first support area, if that breaks, I expect to see 4550 to 4600. I would be a buyer at that level. The big question will be when and if the S&P 500 can make a new all-time new high and continue higher. On the surface it seems there are too many head winds with the geopolitical mess and our slowing economy coupling with our outrageous government and personal debt. While I have never been a doom and gloom investor you would be naive not think we can have problems. However, if we don’t stay partially invested, we risk missing out on any upside surprises. Interest rates, oil prices and inflation are all coming down, so a rally is not out of the question. Investors believe interest rates are going to be cut. I am NOT in that camp unless the economy begins to faulter and/or a black swan event occurs. Either way, interest rate cuts serve to help liquidity and stimulate the economy. I don’t see this economy in need of stimulus, so if rate cuts happen it is because our economy is slowing, and stocks will decline. The positive this year is it is an election year and usually that means there won’t be any drastic moves that can negatively affect the election for the incumbent. I can see the Fed being more accommodative with liquidity, but I don’t see the institutional investors wanting to take more long-term risk until we know the election outcome. My approach is to keep a core portfolio that stays invested. I believe you should add to risk at support levels and mitigate risk if we move higher. Unless we get a big drop, DO NOT over commit to equities as liquidity issues can arise at any time, especially with our rising deficits and debt.
