MARKET SENTIMENT - 2012/05/15

HRA FEELS A HIGH LEVEL OF CONFIDENCE IN THE ECONOMY, CONFIDENCE IN OUR STOCK-PICKING SYSTEM, CONFIDENCE IN THE AMERICAN VOTER, AND CONFIDENCE IN BUYNG STOCK WITH CASH (NOT BORROWING AT THIS TIME!).

Yes, HRA feels that we are taking that first step in a longer-term business cycle, where the US economy has come out of recession and is embarking on a long, slow bullish business cycle. Economic indicators have been increasingly positive, aside from the fudging of the unemployment numbers, and we are seeing good earnings growth which tends to precede the stock market by 6 to 9 months.

Our HRA GOPF Index is showing that our universe of 800 stocks, which we feel is a fairly good indicator of the overall stock market sentiment, is showing that the market is 18% UNDER-PRICED at this time.

HRA is willing to stick our collective necks out to say that we are cautiously optimistic in saying that we expect to see, within 3-6 months, an upturn in the stock market, and from now through June 30, we expect to see the general mood of pessimism change to one of optimism.

Considering that the S&P 500 Index showed a 24.5% increase in the 6 months from 9/30/12 to 3/31/12, and has given back 5.5% since 3/31/12, and our theoretical model portfolios have also seen the same sort of activity, is the recent give-back (correction) due to profit-taking and a brief wait to get back in to the market? Or is the stock market “correction” that has been so heavily predicted and talked about since the phenomenal returns up through 3/31/12 a victim of its own popularity?

We at HRA believe that this is one of the best times to be invested in U.S. stocks – with the value of the dollar increasing, and the price of oil decreasing, U.S. companies will be worth more, inherently, than other world stocks, and their operating costs should decrease along with the cost of oil, as the raw materials will cost less to bring in and the finished goods can be transported at a lower expense, and (we hope) the cost of electricity will also be reined in with lower oil and gas prices.

We’ve seen a lot of segment cyclicality: tech stocks had great returns during the Sept – March period, but have corrected since then. Consumer spending and consumer sentiment helped boost retail stocks into an upward cycle since February. We are seeing bank stocks being beaten around based on Euro fears as well as the JP Morgan fiasco, while certain parts of this industry, such as regional banks, don’t have as much exposure to the same risks, so should not behave in the same manner.

What we are seeing is a typical segment rotation, and HRA believes that as consumer sentiment continues to increase, and U.S. businesses start feeling a bit more optimistic (especially as the political campaigns solidify their platforms), we should see more hiring towards the end of the summer and a definite rise in optimism once the Euro zone fears have settled down again after the recent elections.

On the more personal side, all investments should be based on the individual investor’s risk tolerance – if you want to be aggressive, and can live with volatility over the short-term, then investing in stocks over the long-term may provide increased returns along with that higher level of risk.

Remember, not all investments are suitable for all investors – check with a financial advisor if you plan to make major changes in your portfolio. Also, remember that historical returns are not predictors of future returns, and HRA does not believe that you can time the market. With those qualifiers, we at HRA wish you luck in your investing, and are here to answer your questions!