Stocks, VIX, Obama Administration & Uncertainty January 23, 2010, David Kotok, Chairman & Chief Investment Officer
US stock markets have lost over a half a trillion dollars in market cap since Massachusetts affirmed an American political inflection point on Tuesday night. The preliminary indicator of that inflection point occurred in November, when New Jersey and Virginia elected Republican governors. Each of these was explained away by punditry. But MA put the issue to bed.
So markets did exactly the opposite of what was expected. They started to sell off as soon as it became apparent that the political momentum to tax and spend has turned away from the leftward lurch of the Obama administration’s first year in power. Many are asking why markets moved this way.
Here are some bullets.
Okay, enough items are on this list for today. It is much longer, but we will stop here for now. The issue for readers and investors is what happens next.
We believe these uncertainties are presenting an opportunity to reposition portfolios. We had done some selling prior to the Tuesday election-night news. Some of that cash went into the market during the selloff. A new position in biotech was specifically added in the industry section of the ETF portfolio. We expect to become fully invested soon. We also expect that the resolution of these uncertainties will lead to a decline in the VIX and a rise in US stock prices. Our strategic target remains full closure of the Lehman gap, which translates into 1250-1300 on the S&P 500 Index.
We view the political inflection point as a sustainable shift that will trigger positive changes in US economic policy. And we are supportive of the notion that the Fed will not do anything to derail this fragile economic recovery. Whether it is a Bernanke-led Fed or there are other personalities on the Board of Governors, the policy makers on the Board and at the FOMC know that the biggest risk they face is moving to tighten too soon. Inflation remains tame. The Fed will remain friendly to markets and, most importantly, to the economy’s recovery.
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For a list of all equity recommendations for the past year, please contact Therese Pantalione at 856-692-6690,ext. 315. It is not our intention to state or imply in any manner that past results and profitability is an indication of future performance. All material presented is compiled from sources believed to be reliable. However, accuracy cannot be guaranteed.
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