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As the Bull Bounces

02/02/2011

The equity markets remained on a decidedly bullish path in January. Despite one sizeable day of selling last week, courtesy of the political upheaval in Egypt, stocks enjoyed a very good start to what I suspect is going to be a very good year.

In Tuesday’s trading, the Dow Jones Industrial Average spiked above the psychologically significant 12,000 mark, while the S&P 500 Index surged above the 1,300 milestone. Now, the breaching of these round numbers tends to get a lot of coverage in the financial press, and that positive attention fuels what I consider to be both a legitimate and justified resurgence of confidence that investors now have with respect to both the equity markets and the economy.

Looking at the numbers for January, we see that the Dow rose 2.72%, while the S&P 500 Index climbed 2.26% during the month. The NASDAQ Composite added 1.7% in January. The small-cap Russell 2000 Index was actually down fractionally in January, so the only real sign of weakness was in the emerging markets.

Emerging markets, as measured by the iShares MSCI Emerging Markets Index (EEM), fell 3.84% in January. Although EEM has recovered somewhat from its January lows, weakness in emerging markets can be seen throughout both Asia and Latin America.

To give you a sense of how far some of the biggest emerging markets have fallen from their respective 2010 highs, consider the following:

  • iShares MSCI Brazil Index (EWZ), 9% below its 2010 high
  • iShares FTSE China 25 Index Fund (FXI), 10.5% below its 2010 high
  • WisdomTree India Earnings (EPI), 20% below its 2010 high

What, if anything, does the divergence between the rising U.S. equity markets and the languishing emerging markets tell us about the future of stock prices? First, I think it shows that the economic momentum and faith in the United States is back -- and that’s a great thing for the country, and your investments.

Now, one thing I’ve noticed here in speaking with subscribers to my newsletter services and to prospective clients of my Fabian Wealth Strategies firm, is that most investors actually are under allocated to the stock market. After the volatility we saw in 2010, I don’t blame anyone for being a bit gun-shy.

Yet, I think now is the perfect time to grab the bouncing bull by the horns, and to start getting yourself on board with the 2011 bull market. If January is any harbinger of things to come for equities in 2011, we are going to have a strong year -- and that means you will want to make strong moves to get yourself onboard.

If you’d like to find out what investments subscribers to my Successful Investing advisory service currently are using to get a leg up on this bull market, then I invite you to click here.

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