We’re just days from the end of the first quarter, and it’s been a stunning start to the year. Even with the recent pullback, stocks are near their best first-quarter gains in 14 years. The Dow has surged 7%, the S&P 500 12% and the Nasdaq 19%.
So what caused the run-up, and are today’s declines a sign of trouble on the horizon?
First let’s tackle the reason for the Q1 rally: the economy improved.
Look at the job market. The most recent report shows the four-week moving average of jobless claims is 354,000. This number breaks the critical 400,000 threshold, which signals that hiring is taking off.
Additionally, consumers began spending again. Retail sales saw their biggest monthly jump since the fall, rising 1.1% in February. And the spending was far and wide, from sporting goods to new cars to electronics. And since 70% of our economy comes from consumers, this should translate to a continued boost in GDP.
Now, what’s interesting is that while the economy continued to improve month after month this quarter, and the market continued to rise, many folks — both on Main Street and Wall Street — refused to believe the rally would sustain.
And their “wait and see” approach has cost them dearly.
I’ll pick on hedge fund managers for a moment to show you what I mean. According to Bloomberg, “The Bloomberg aggregate hedge fund index gained 1.4 percent last month, lagging behind the Standard & Poor’s 500 Index by 2.65 percentage points.”
These managers were so paralyzed by fear that their inaction caused them to lag the market. That’s disgraceful.
So now, with the quarter coming to an end, and under performance threatening their bonuses, reputations and jobs, hedge fund managers are scrambling to move out of their conservative assets and are just now buying stocks at the fastest pace in two years.
The proof? On March 27 alone, 175 stocks on the New York Stock Exchange hit new 52-week highs — including many big-name blue-chip companies.
They Called Me Crazy When I Said Dow 14,200
At the start of the year, I went on the record to predict Dow 14,200 by year-end. My prediction certainly ruffled a few feathers, and I took a lot of flack for taking such a bullish stance. I heard it all. “Louie, you’re off your rocker.” “Louie, you are out of touch.”
Funny how those naysayers have been awfully quiet as of late.
In addition to that Dow prediction, I also released my list of the Top 5 stocks to buy in my free 2012 Profit Playbook. Now if you never took the time to open that Playbook, you might not like what you’re going to see next.
Here’s a look at how those stocks have performed year-to-date:
I can hear the skeptics now, “Sure Louis, that’s nice, but …”