As we head into the July Fourth Holiday I’m struck by what an appropriate holiday to be celebrating based on our financial markets. No, not so much the Patriotic implications, but the fireworks!! Every day when I come to work and power up the computer I’m expecting to see new “fireworks” exploding on my screen as some new catastrophe of the day has lopped a couple hundred points off the DOW.
Instead, surprisingly to me, the markets have really fared fairly well this year with SPY, the S&P 500 tracking ETF up just over 5% for the year.
Unfortunately 5% can be wiped away in just a couple days if fireworks are really ignited. Not surprisingly, I’ve received several phone calls from investors asking what our outlook and strategy are as we head into the second half of the year.
Since today is the 3rd, and a shortened trading day, and I plan on going out of town for the rest of the week, this will not be THE 2nd half of 2012 Outlook piece. But I thought I’d send out a brief note before what will be a very long weekend for some of us.
Bottom line the economic news that hit over the weekend was pretty bad. Virtually every single country showed flat or slowing growth in manufacturing as indicated by the PMI numbers that came out over the weekend. And yet the market has held up. The one Wall St. axiom I quote often is, “Don’t fight the Fed.” Meaning when the Federal Reserve is easing, or trying to stimulate the economy, the stock market will generally react favorably. Today, it is not just the U S Fed that looks to be moving closer to a new round stimulus. With the generally weak global PMI numbers China is loosening their lending requirements, Brazil looks to be reversing their currency policy and strengthening the Real before the World Cup and Olympic events that they will be hosting, and of course the big one, Germany has blinked first, and looks like they will accept a more accommodative policy for the rest of the Euro Zone.
Our strategy has changed a bit. I have sold SH, an ETF that acts in the reverse of the S&P 500, from our income portfolios. This 20% position did very well dampening our volatility for May and June, but I think July may be a decent month as Central Banks look to speed up the printing presses. Until next week, I’ll leave this in cash or a neutral position and see what happens when Wall St. returns from the Holiday. This does leave our targeted income a little short, so I will be making a move soon. Our ETF Seasonal Growth strategies are unchanged. Our low Beta (volatility) strategy has done very well since our “go away in May” sell signal tripped early in mid April this year.
For those of you that trade on your own, UNG the ETF that tracks natural gas has been moving up, and is right at resistance at $19.50. If it holds above this level it could be a buy. For really aggressive investors, Brazil might be a play heading into the winter Olympics. Neither holding would be appropriate for our strategies.
Of course past performance is no guarantee of future results. And any ideas suggested in this post require significant additional research before implementing into any portfolio.
