Dow To 14,000… and Beyond?

Dow To 14,000… and Beyond?

- in Markets
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Dow To 14,000… and Beyond?

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

If you’ve been a hibernating bear lately, you’ve missed a ton of positive news, as U.S. construction spending rose, ISM manufacturing data beat expectations and the country added 157,000 jobs. In addition, the JP Morgan Global Purchasing Managers’ Index rose to 51.5, staying above the expansion level for a second month in a row. The strengthening data, as well as improving investor sentiment, helped the Dow hit 14,000 for the first time since 2007.

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For the month of January, U.S. stocks experienced the best month in more than two decades. Per the Stock Traders’ Almanac market indicator, the “January Barometer,” the performance of the S&P 500 Index in the first month of the year dictates where stock prices will head for the year. Let’s hope so. As Adam Shell from USA Today writes, “While there’s no guarantee that what happens in the first month of a new year will continue for the remaining 11 months, history is on the side of investors.”

Shell asked for my thoughts on this trend and I told him that sentiment has improved in part because several uncertainties have been removed from the market. Read the rest of the story here.

Sentiment among individuals, advisors and traders has experienced a sudden spike recently, says BCA Research. Its latest Bloomberg numbers show that 53 percent of those surveyed expect equities to be the best-performing asset class over the next year. This represents a “17-point jump over the previous poll in November, and the highest reading in the four-year history of the survey,” says BCA.

Investors stocks sentiments at a high

My anecdotal experience this week at the World Money Show in Orlando, Florida supports the view that investors are going “all-in” for equities, as the exhibit hall and conference rooms were packed with thousands of enthusiastic investors looking to gain insights. We enjoyed good conversations and I’m happy to have contributed a few ideas at the general session that attendees could immediately put into action.

As a result of the sentiment that rose faster than the summer heat in the Sunshine State, it’s common to question if the market has climbed so high that it might correct and revert to a long-term mean.

Take a look at the oscillator to see today’s incredible shift in context with its historical moves. Using 10 years of data, the S&P 500 Index has moved one standard deviation from its mean over the past 60 trading days. The MSCI Emerging Markets Index is only about a half of a standard deviation from its mean over the same time frame. These charts indicate that the indices are not at extreme levels, like the low we experienced in 2009 or the high a few months later. Rather, the stocks are moving within their normal band of volatility.

S&P 500 not an an extreme level

This gauge has been a reliable indicator for our investment team, as markets that enter the extreme territory have historically reverted back to their mean. However, don’t panic if a correction should occur, as it would be healthy and reflective of the normal volatility inherent in both U.S. and emerging markets.

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Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.


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