In late April , as the market was peaking after a strong six weeks into excellent earnings reports, we stated on the site that a 3%-5% correction was now a realistic expectation. From a peak of Dow 12,875 and 1371 in the S&P 500 ,these indexes declined by about 4.5% reaching lows of 12,310 and 1311 respectively last week in the middle of the fourth consecutive down week. At that point, an increasing number of stocks started to bottom and turn upward.
Many stocks during the four-week pullback in May declined about 10% from recent peaks, permitting the opportunity
to accumulate stocks during the weakness and establish a good average price. This is the cornerstone of our investment philosophy.
While some further consolidation/trading range action is, probable we do not see much overall risk at this juncture. We could easily see some short term volatility however due to the Greek/ European Debt Concerns ( Austerity Programs). We believe the economic soft patch that literally everyone is so highly concerned about seems largely over. Some factors that caused the slowdown and are likely to be reversed include:
1) Lower gas prices as we move into the summer.
2) Economic recovery in Japan.
3) An improved supply chain for the auto and electronic industries.
4) Resumption of Global Economic Growth
Significant economic growth is expected in the second half of 2011, carrying into 2012. Last year, as the market made the July/ August low, a double dip was a widespread concern keeping many investors on the sidelines. As the consolidation/trading range runs its course. we expect higher equity prices overall into year-end. Keep in mind that equity valuations are historically low at about 12 times projections for the S&P into 2012. Our target for the S&P 500 Index remains at 1550.00 with projected earnings of $110 in 2012. Gridlock, our theme well before the 2011 mid term elections, is alive and well. We believe Gridlock will continue to bring about positive benefits to the markets as we enter the 2012 Presidential election season. We remain positive on the equity outlook and that the risk is in not being long quality stocks with a good average purchase price.
We would view any weakness as a good opportunity to increase or establish positions in companies that promise steady earnings improvement. We are reiterating our list of ” Favored Stocks ” below.
Apple, Inc. AAPL
Alpha Natural ANR
Apache Energy APA
American Express AXP
Peabody Energy BTU
Cliffs Natural CLF
Deckers Outdoors DECK
Devon Energy DVN
Exxon Mobile XOM
Federal Express FDX
F5 Networks FFIV
3M, Inc. MMM
Starwood Hotels HOT
Walters Energy WLT