As we expected, the Dow finally broke through the upper end of a long term trading range and is making new highs. Now that we’re here, worry abounds. Even analysts who expected new highs in 2013 are calling for a pullback. We take this as a good sign, meaning the rally can continue for a while. Day after day of a rising market is an unreasonable expectation, but certainly a market that works higher without drama is possible given the cautious sentiment. Except for Tuesday last week, daily moves in the Dow have been less than 100 points as opposed to the huge unsustainable leaps that are associated with extreme volatility. We also like the market’s breadth: every type of company is having its day in the sun. All told, the Dow is up over 9% so far this year. No doubt there will be bumps along the road – we’re not going to have a +60% year.
Meanwhile, bond interest rates are rising, but for the best possible reason: the economy looks better, inch by inch. Notably, history shows that stock market returns are excellent during times of slow, steady economic growth because that kind of environment is less prone to bubbles and distortions.
All in all, we like it!