Thursday, January 12, 2012

Persistent resilience of the US equity market

The US equity market continues to stay resilient after beating every major equity market globally in 2011. This is upsetting many investors, as numerous fund managers and individuals are underinvested or short. We are still getting angry emails about the October 15th post called "It's green light for the US equity market - for now". In spite of all the dire predictions however, the S&P500 is up nearly 6.5% since that post.

S&P500 performance since Oct 15th
Going forward we may in fact see some pullback given this quick rally.  We may also have some headwinds from the US budget issues and an uncertain employment picture.  Europe will continue to weigh on this market even if the US stages a partial decoupling from the eurozone issues.

Longer term the US equity picture remains benign.  With the S&P500 dividend yield above the 10-year treasury rate and PE ratios of around 12, the market is not overextended.
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