Reasons Why 2Q 2012 Won’t Be Like 2011:
Economic data trends are moving up.
The market has risen significantly in 2012 for the first quarter but can this performance continue? History says yes. For the most part, when the first quarter of the year has been this profitable, it’s likely that the year will end higher. While it’s not yet time to look at our beginning of the year predictions, it’s clear that this year has been much different from 2011 already. Stocks are likely to remain good investments this year because many people are still in gold. If the rally in stocks was over, it would be because too many people were participating which hasn’t occurred yet and there is only a slim amount of anecdotal evidence that shows the retail investor is back in the market.
The New Retail Investor
When the market is nearing its apex, retail investors are participating and this current extended rally has only attracted some retail investors who are used to trading and using sophisticated trading tools. Retail investors are still somewhat at a disadvantage because their trades largely don’t impact the overall market but traders that have differing time horizons can do well in a market that is going up. We see the market is robust and don’t believe the market is in a similar position as the last 2 years where optimism was uprooted by negative data largely because we see an upward trend in the economics data.
Economics data is still mixed positive and money managers that are looking to outperform the market may stay fully vested until they see clear signs of a diffused market. If economics data continues to stay positive, 1st quarter gains will pale in comparison to 2012 highs. We are carefully watching stocks from a technical perspective but we don’t see many reasons from an economics data perspective that would cause traders to turn the cheek on equities just yet.