Recent Hiccup Provides Opportunity
By Daniel Wiener, The Independent Adviser for Vanguard Investors
After seven straight months of up markets with nary a hiccup, we finally got a bit of a pullback last week on what I believe is complete disregard or ignorance of Fed Chairman Ben Bernanke’s comments after the two-day Fed meeting.
If the Fed chair is even close to right, the second half of 2013 could shape up to be a good one, where corporate fundamentals begin to catch up to forward-looking valuations and expectations for further gains lead to higher stock prices late in the year.
The naysayers on Wall Street have maintained that the stock market’s recent rally to all-time highs has been fueled by the Fed’s easy-money policies rather than real economic and corporate profit growth. If that’s so, and if the economy begins to churn out more jobs in the coming months, then that leg of the bearish stool collapses. Assuming investors then begin to look further down the road they’ll see that greater economic growth will lead to greater manufacturing and service demand and will bid up stock prices in anticipation.
In the meantime, the recent market pullback has been just the ticket for the active managers running Vanguard’s best mutual funds. While the stock market may be down 4% or so from its all-time high, the tumult of the month’s final weeks means some stocks are down a whole lot more than 4%. Smart managers will be picking up bargains that have pulled back 8% or 10% and selling holdings that may have only backtracked 2%, setting us up for juicier gains down the road.
I remain a huge fan of Dividend Growth, Selected Value, Capital Opportunity and Health Care in our Model Portfolios and think that slightly better news abroad could give a boost to holdings like International Growth.