Markets have risen sharply since December and while the economy continues to improve there are several issues that have me concerned about the near term market direction:
Investors have become increasingly and probably extremely bullish. Market sentiment back in November and December was as dismal as any time in recent years but investors have turned around and bullish levels are nearing extremes.
Republicans continue to spread a confusing and often times a medieval message (who’d ever think the Crusades would have been a talking point?) as talking head topics have shifted from economic solutions to social issues. A Romney victory in November would likely have been viewed as a significant positive for equities but his primary message has not materialized. The longer the tug of war continues between Newt, Romney, Paul and Santorum the odds grow for an Obama victory. The Presidents poll numbers continue to improve along with the economy which favor an incumbent win.
Broadening turmoil in the Mideast and the price of oil which just reached $105.
Market cycle projections show market weakness beginning soon and lasting into early Summer before a significant rally materializes.
For these reasons I have begun culling dead-money stocks from our portfolios. While there is little evidence to suggest a market correction is imminent, the ingredients for a future pullback are beginning to materialize. But in the meantime investors remain very bullish, hence we’re taking a more cautious approach.