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The Lindsey Report – November 2013


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Domestic equities continued their rise in November, setting more all-time-highs (as measured by the S&P 500).  As much as I enjoy seeing domestic equities plow forward, I would like to see the equity markets take a breather (or a healthy pause), allowing the economy and profitability to catch up with current valuations.

Fortunately, some good signs for the economy and its ability to catch up were released on 12/5 and 12/6/13.  On the 5th the Commerce Department revised upwards their 3rd Quarter GDP reading from 2.8% to, drumroll please, 3.6% growth (ibtimes.com).  While this might not be called “robust”, it is pretty darn close and one of the strongest numbers seen in quite some time.  Not surprisingly equities…. Fell.

On Friday the 6th, the Labor Department reported that the economy had added 203,000 jobs (Associated Press) where many of the jobs were in higher paying industries.  Not surprisingly equities….Gained.

This likely demonstrates a conundrum that currently exists.  On the one hand, we want to see the economy continue strengthening, period: it is just good!  Yet, the other hand is concerned that the faster the economy heals, the sooner the Federal Reserve takes their foot off the accelerator. To what degree the actions of the Fed have led to this year’s rally in stocks is unknown, but the best counterbalance to any arbitrary rise in prices should be an improving economy.

In the coming months I expect that the markets will be hyper sensitive to any speculation about possible Fed “tapering”, as this will likely put downward pressure on equities, which might result in a healthy correction.  The oxymoron is that positive economic news may be the precursor to such a pull-back.

As we all know, ups and downs are part of investing.  If we need to experience a correction caused by better-than-expected economic news, I’m all for it.  I would much prefer a healthy correction caused by good news, rather than bad, because I think we could recover from it much quicker.

 

Securities offered through LPL Financial, Member FINRA/SIPC

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