The Market Continues To Climb A Wall Of Worry

As I write this 10 minutes before the market opens after the Memorial Day weekend, the Dow Jones Industrial Average┬ástands at 16,606, down a mere 110 points from the record high established on May 13. On the other hand, the Dow Jones Transportation Average registered a new high of 7,986 on Friday, the same day the S&P 500 closed over 1,900 for the first time. So as you can see, things are remarkably good. Yet if you listen to the news or watch the TV, the mood does not match the reality. It appears to me that the majority of market observers are negative on the market. The commentary continues along the themes of fear and caution with many “experts” suggesting that the market is primed for a collapse. In the face of all this general pessimism, the market continues to gain ground, or “climb a wall of worry”. If sentiment remains this gloomy while the market remains at such lofty levels, I believe the market will continue to rally to ever higher levels.

Indeed, I believe that the market should end the year higher than it began, perhaps by as much as 10%. With that overarching belief in mind, I remain fully invested in my own accounts and on behalf of my clients. I don’t attempt to trade the short-term movements; rather, I look to buy the┬ásecurities I want when opportunities present themselves. And I only buy things I believe will out perform the broad market for at least the next three- to five years. If I don’t have that confidence, I don’t buy it.

I also think that the battering endured by the biotech and high growth technology sectors may be over, suggesting that it could be time to nibble at some stocks in those sectors. Many prior high-flyers dropped between 25% and 50%, or more in a very short period of time. It also may be time to look at some downtrodden housing stocks as the housing numbers are expected to perk up over the next few months. Finally, as a core holding, the value sector, as represented by dividend-paying, blue chip stocks continues to be a smart place to put your money for excellent long-term returns. Indeed, that’s where the bulk of my own money is invested.

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