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Good Morning!
Investors continue to wade into the stock market on pull-backs, resulting in a sideways to upward bias. We find this action, encouraging to say the least, but also believe that a correction, the cause of which is unforeseeable of perhaps up to ten percent, is quite possible and would ironically be welcome as it would allow investors an entry point. Many find the rally encouraging with some believing that it is the beginning of at least a cyclical, if not secular, bull market. Time will tell. Skepticism is high. However, regardless of the nature of the rally, after the period of consolidation or correction noted above, we believe that this rally still has legs. We find it encouraging that the economic, corporate and consumer data has been coming in at or above expectations, indicating to us that the fifty-five plus percent drop from the top as registered by most major indices had priced in a severe recession. As noted above, don’t be surprised if equities take a breather. We have stated repeatedly since the beginning of the year that Mortgage-Backed, Corporate and General Obligation municipal bonds are very attractive relative to treasuries and we strongly recommend that investors take advantage of this. If you are looking out over the next two to five years, stocks offer compelling opportunities. As noted above, be certain to add to positions on fear and weakness rather than strength.
Dennis Fagan
Chris Fagan