In the first quarter of 2013 the
equity markets threw all caution to the wind and ended the quarter at
new record highs. Threatened effects of
“Sequestration”, anemic corporate earnings growth, and
restrained optimism of corporate leaders were largely ignored as
volatility remained at post crisis lows. The market has gone 90
trading days without a 5% or greater downturn, and 374 days without a
correction of 10% or more.
The recent rally is further evidence that markets tend to climb a wall
of worry. Moreover, even as markets have erased all of their
crisis losses, investors are still cautious. According to the
American Association of Individual Investors, investors are carrying
cash at 16 month highs. Corrections usually take place once there
is nobody left on the sidelines to get in.
In spite of a tepid outlook for
earnings and economic growth, combined with continuous fiscal neglect,
the markets may very well continue to create their own reality for the
duration of the year.