Friday, December 3, 2010


The stock market has had a very cheery start to December, which is typically the best month of the year. In just the first two trading days, the S&P 500 is already ahead by 3.5%. With all of the negative headlines swirling about the continuing debt problems in Europe, and on the heels of strong gains over the past three months, we’ve felt that stocks were probably due for a moderate correction on the order of maybe 5 – 10%. But, they only fell a little over 4% from the recent highs reached on November 5th before popping right back up in the past couple of days.

The S&P is back to 1218, just 9 points from its November 5th high. The Dow and NASDAQ are similarly back close to their highs. But a little more under the surface, there have actually been an increasing number of breakouts to new highs among other indices and sectors. Indeed, small and mid-cap indices, and the energy, materials, industrials, and consumer discretionary sectors have all made new bull market highs in recent days. Considering that the character of those stocks tends to be more cyclical, we believe it sends a signal of a growing confidence in the economic recovery at this point. We’ll be watching closely to see if the Big 3 large-cap indices play catch-up and register their own breakouts. If that happens, it would be a very favorable development for the bulls.

Chart: Russell 2000 Index