A New Market Environment

This week has been one in which some significant changes in the market and economic environment have become more visible.  Short term interest rates broke out to the upside on Monday and while the Fed will try to keep them very low the fact remains that the cat is out of the bag in a longer term sense.  Economic activity is increasing and that changes the Republican kill the baby mentality in this election year but it is an election year and some supply side dream will no doubt appear before election day.  The European crisis is reaching a sticky point where things are going to gel out and a wait and watch period will be unfolding.

So the real question is : what does one do with the stock and commodity markets here.  Creeping inflationary pressures fueled by money supply increases over the last three years is in the background.  Creeping upward short term interest rates will dampen things a bit.  The S&P profit cycle has no doubt peaked.  So, what in my opinion will occur now and through the election is pretty much what we outlined a month ago in the Annual Outlook, a sideways market with the current price levels near or at the top of the range for the year. Other than stocks all of the markets we track are still well within projected annual ranges.

And a final comment, the financial sector, which has been the weak sister in the period following 2008, has been the sector that has outperformed in this last rally from the October 2011 lows.  This is what one would expect in the last stages of a market up wave, i.e. the weak catch up.

And, I almost forgot, this is no environment to own gold, its reason for being appears to be over for this economic/market cycle.

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