High in August?
August 17, 2012 Leave a comment
We’re supposed to “Go away in May, come back on St. Leger’s Day” (September 10th) if we want to avoid market losses over the seasonally weak summer months. But right now we are very near our 2012 highs, set in early April, on the Dow, the S&P and the NASDAQ.
Why are we near our highs in August? Earnings are slowing, hiring is slowing, China is slowing, foreclosures are still plaguing many U.S. regions, gas prices are high, and isn’t Europe still a mess?
Yes, Europe is still a mess but early in the summer it wasn’t too hard to spot a shift in Germany’s attitude toward helping resolve the debt crisis in Europe, and avoiding default in Italy and Spain, if you read or watched something other than the major U.S. financial news outlets.
I feel, this summer rally is based on a growing awareness that, in their piecemeal way, the Europeans are slowly getting their arms around avoiding defaults in their larger banks and economies. (I think Greece’s exit from the Euro Zone was priced into the markets early in the summer.)
Generally, stocks do not seem pricey on an historic valuation basis (although retailers seem a little over valued.) We could run into some resistance here at the 2012 highs, so, assuming a full allocation to stocks, it’s not a bad time to protect profits by selling (or moving stops up) underperforming stocks and funds, and trimming back on stocks or funds that have become outsized positions.
It’s nice to have some cash around for a pullback, and it seems very likely there will be at least one before the year is out. Big cap multi national companies are still my favorites as long as they pay out at least 2% in dividends that are consistently raised most years. Regional banks are finally looking like good recovery buys as do autos, and gold looks like it’s building a base above 1500.