In case you haven’t noticed, the stock market has surged over the past month and a half.  A 35% increase in the S&P500 is a great performance for a whole year, let alone six weeks. The big question is “where do we go from here?”. Is this a Bear Market Rally? A Bear Market rally is an uptick in the midst of a generally downward moving market.  These are common, and often tend to entice those on the sidelines to get back into the market, often with disappointing to disastrous results.

No one wants to miss a strong run up in value, so an  uptick in the midst of a bear market often causes investors to overlook evidence to the contrary.  On the other hand, is this the beginning of a new Bull Market? If so, everyone wants to be on board.  One problem with a bull market is that often, the biggest part of the overall gain takes place early, often 25-30% of the total gain is realized in the first few months. This factor also acts as an incentive for investors to hurry and get in so as not to miss the benefits.

Well, here is some news.  No one knows the answer to the big question. The evidence is mixed. Unemployment continues to be a problem, but job losses have slowed down a little. Credit is still tight, but not as tight as a few months ago. Real Estate is still in big trouble, but not as bas as it was. This is the same story in basically every part of the economy, things are still bad, but not as bad as they were.

It’s hard to get a feeling of confidence and motivation in an atmosphere of “things are bad, but not as bad”. The chances of serious problems are still at least 50/50. What is an investor to do? No one wants to miss a run up, but no one wants to get caught again in a downslide.

The correct response, it seems to us, is to be nor more than half right, or wrong. Place 50% of your investable portfolio is stocks of well capitalized, long term solid performing companies, particularly those in a good cash position. We have a list of these companies which we will be happy to share. The other half should be in a portfolio of corporate bonds or bond funds. They should be diversified in terms of maturity and ratings, but bonds appear to be a better bet in terms of yield and possible gain then certificates of deposit and money market funds. Again, we are happy to provide our recommended list of options.

If we have turned the corner, and a new bull market has developed, we have plenty of time to gradually move out of bonds and into stocks.  If the opposite is true, the bond portion of our portfolio will prevent the kind of losses that were incurred in 2008-early 2009. Please contact us at anadolna@associatesgroupoinc.com