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Best Month for Stocks in 15 Years, but for Rest of Year?—Searching for Alpha for February 2012
Stocks started off with a bang in 2012, with most indexes (see below) posting their best January return in 15 years. As the economy continues to heal (albeit slowly), one might wonder if the uptrend that started in the fourth quarter will continue.
From a fundamental point of view, it should. Corporate earnings continue to impress, as companies are still largely beating estimates. Interest rates are low, and will likely (according to the Fed) stay that way for the next few years—which would appease the concerns of those looking to refinance debt. Durable goods orders have also been healthy, rising 3% in December following a 4.3% in the prior month. Amid these positive developments, equity valuations remain at firmly depressed levels.
But don’t expect a yellow brick road path for stocks this year. The negative karma surrounding the world’s economy—which includes worries over the EU, the domestic housing market, and the sustainability of the current recovery—makes it tough to imagine that stocks will continue to defy gravity. I do expect stocks to end the year higher, but the path will once again be circuitous. Those without a long-term view and an eye for diversification may have issues holding onto the bucking bull in 2012.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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