Day-to-Day Markets

Day-to-day market performance can be quite unpredictable, and perplexing to investors who are trying to get a good read on where the market's heading. 

During the past month or so, we've seen market volatility in reaction to European debt issues, China's efforts to slow its economy, North Korea's attack on its southern neighbor, better US economic news (though worse housing news) and continued chatter about the intrinsic worth of QE2. 

Unfortunately, it can be difficult to determine what's worth paying attention to as a longer-term barometer and what's simply short-term noise.  Clear-cut economic data is hard to come by, but we believe the balance of the evidence imply a strengthening US economy, which should help to support stock-market performance in the coming year.

The controversy surrounding the Federal Reserve's recent decision reached a crescendo, but while there’s a good argument that it wasn't necessary, we believe the “doomsday scenarios” from a second round of quantitative easing (QE2) are overblown – which equates to an overall positive for the market for now.

As we've noted, we believe a retraction in the market was overdue, and largely needed to correct some of the overly optimistic sentiment (a contrarian indicator) that had built up. Sentiment is likely to remain a short-term driver of market performance.

We remain optimistic on the market's prospects heading into 2011. It appears that certainty among consumers and businesses is building, which should lead to higher consumption and investment that we believe will get money flowing through the economy again.

Remember, though, stock investing should be a long-term process. As we've seen, unanticipated events can dramatically impact markets over the short term, but the trends smooth out over the longer-term. You can’t predict the future, but you can plan for it.