Thank God for pessimists. Cynics. Naysayers and haters. After five years of solid equity returns, we would be preparing to reposition away from stocks. If, there weren't so many bears.
Take Friday's jobs reports. One of the best in years. Non-farm payrolls rose 203,000. Wages increased. As did total hours. And unemployment sank to 7 percent.
Yet, the pessimists still found something wrong. 41 percent of the jobs came from the public sector! Which was true. Yet, they failed to account for October's partial government shut down. Which affected the household survey. So, this data needed to be viewed over two months. Not one.
This economy is improving. Slowly. But improving, nonetheless. Question remains, is that good for stocks?
Counter intuitively, stocks tend to do better when the economy is slow. Over the last 60 years, investors would have performed best only buying stocks when the economy was not growing. And then held them for 12 months.
In fact, had you bought stocks when the economy registered growth of 0 percent or less, and then held them for 12 months, you would have averaged 21.1 percent. Conversely, had you purchased stocks when GDP growth was at 6 percent or better, you'd have done much worse by comparison. Stocks would have risen only 5.6 percent.
Despite the Keynesian belief that the government shutdown would hurt the economy, it has not. October consumer spending grew at a 3.8 percent annual rate. The fastest of any month this year. Consumers spent confidently, even as their capital shut down.
Moreover, Q3 GDP was stronger than expected. Employment is improving. How's that for a thumb in D.C.'s eye?
In November, automakers report that cars and light trucks sold at the fastest pace since 2007. Potentially another good month for consumer spending. Further laying waste to the story that the fiscal cliff, the Sequester and the Government Shutdown would hurt consumers.
Congress may be approaching a budget deal. This would avoid another debt ceiling crisis. Though, this stroke of diplomacy would represent just another band aid, not a permanent, bi-partisan accord.
China's manufacturing PMI expanded to a new high.
By all accounts, November was a good month. Not much bad to report. Personal income was disappointing and holiday sales were a bit soft. Otherwise, can't whine much.
Well, I will mention the Buckeye's disappointing Big10 Championship loss. In fact, click here and flip to photo #19. The scowling brunette that looks as if she's about to take a ball to the face? My wife. That two hour drive home from Indy? Ouch..
The Bottom Line
Professor Jeremy Siegel has been spot on regarding stocks. Long term. And recently. Currently, Professor Siegel believes that the market is 10-15 percent undervalued. Further, he feels it could go significantly higher.
So, while I'd have an exit strategy, I'd be allocating cash-at least some-back into markets this month. The market trend is positive. Select facets of the market are even better positioned. Don't scare yourself away from opportunity.
Major markets finished flat last week. The DJIA fell 0.41%, the S&P 500 lost 0.04%, and the Nasdaq advanced 0.06%. Small cap stocks fell 1.01%. And the 10-year Treasury bond yield gained 11 basis point to 2.86%. Gold declined $24.44 per ounce, down 1.95%.