Trading in the past two weeks was pretty light, and as I said last week, the action was not something that could be relied upon as an indicator of investor sentiment. This week things got back to normal, at least in terms of trading activity. And the result was a bit less exhuberant than many were hoping for.
The Dow was down almost every day this week, declining 4.8%. Although this is a bad start to the new year, I see some positives in the underlying activity. While the broad market has declined, we are seeing mixed results in individual names. Looking back over the past few months, company specific news didn't matter - even good news would result in a selloff. Investors were viewing good news as opportunity to get out of a stock, resulting in plummeting prices for companies that were doing just fine.
It appears that the situation is changing a bit, and investors are beginning to pay attention once again to what is going on with specific companies. Good news is once again driving stock prices up instead of being viewed as opportunity to sell. I believe this is a positive sign for the markets - investors are beginning to behave more rationally.
The economy continues to weaken, but it is as we expected. The economy still has some challenges in the coming months, as we saw today with the unemployment report coming in at 7.2%. I would not be surprised to see 8% or higher in the next couple of months.
That said, we believe that much of the "shock" is behind us. The general feeling is "we all know it's bad, let's get on with it". And that is a good sign. People aren't looking to lay blame anymore, but rather to find a solution. When the focus is on solution rather than mere survival, things are more likely to begin to normalize and turn back toward the positive.
Given the above, we believe that it is time to start re-building portfolios. We began slowly adding equity exposure over the past month, and will continue to do so over the next several months. We remain cautious, as there are a number of challenges to overcome, but we are more optimistic regarding equities than we have been for the past few months.
