Where Might We Be Going?
We suspect the Putin Show will add volatility to the markets as he tries to re-claim parts of the old Eastern Bloc countries. This could go on for some time. However, as Europe patches together how to re-distribute energy supplies, and it becomes somewhat less likely that Russia will invade someone, the markets should settle down some by fall.
By back to school we likely will have had two decent earnings seasons (Q1 and Q2,) reflecting modest to good growth in the U.S. economy, and we may even see the Chinese economy somewhat stabilized around a 7% growth rate, which should be a level generally acceptable to the markets.
What to do? We think stocks will provide solid returns in 2014, but probably most coming later in the year. We should try to maintain core positions during periods of volatility while avoiding heavy losses if the market suffers from an extreme geo-political event.
* Maintain stops at critical, long term support levels on stocks and ETFs. (One can always re-enter key position when things settle down.)
* If for some reason they haven’t been stopped out, clean out stocks that are serious earnings disappointers.
* Add to key positions and favorites, including ETFs (exchange traded funds) and mutual funds, on the bounce after a sustained pullback. During corrective periods stocks will bounce off of support at some point. Wait for them to bounce then add to positions with stops under the recent lows.