INSIGHTS
JUN
3
WEEK AHEAD...
Let's be clear about something that might or might not be on every investor’s mind after last Friday’s selloff. Is the beginning of the much-anticipated pullback/correction that we all know is coming?

We don’t see Friday’s late day selloff as anything more than the weight of a major rebalancing in equity markets. This rebalancing dislocated the market more than it should have simply because the liquidity in the market is absent. With no liquidity to offset the selling pressure we had a 209pt move to the downside on the Dow. Thankfully, it did not erase a positive month and investors are still doing fairly well in this long and winding bull market.

There were several positive reports last week and these reports are helping the markets to continue on firm footing. The US economy has shown itself to be one of the bright spots on the World economic front and it appears it will continue to do so for quite some time. The equity markets have reacted positively to the US growth story and without an alternative; this is where money is headed.

We do believe that long term, US equities are going to be a sound option and have no problem with long-term strategists calling for a Dow in the 18,000 to 20,000 range in the coming decade. However, for now, lets just say we have had a great move and if you decided to lighten up and go to cash, you wont miss much. That is a short-term strategy only.
Long term, we probably are more bullish than most and have yet to see anything that will change our opinion.

Here is where it become interesting:
This week has some very interesting data points and we need to watch them carefully to see if our short-term/long-term opinion is still strong.
PMI Manufacturing Index is out on Monday and that is as interesting as you will find. While the consensus is towards the high end of what we have been seeing this year, a miss here could be another short term sell signal. The ISM Mfg. Index will also be out on Monday and some analysts like this one better than the PMI. Either one will give you a good picture of activity in Manufacturing and where the economy is heading.

We wouldn’t be surprised if the numbers don’t come back as strong as expected.

The Employment numbers on Friday will be the key data point of the week. We think that they will be improved over last months and the one key number the Fed will be watching this time will be Average Hourly Earnings since inflation is one of the key concerns of Fed policy makers, they will be very interested to see how wages are improving. Too fast and they will be inclined to explore raising interest rates.
While we do believe there will be an uptick in this magical number, we don’t see it yet becoming a major source of inflation.

We will be watching it carefully and give our thoughts next week.