So far, the beginning of this year has been a continuation of the party that started last fall when the Fed began its policy of indefinite quantitative easing. Negative news like the weak Q4 GDP and continued political and economic instability overseas has not been enough to derail the rally, which has moved the market beyond its 2007 highs.
I don’t know what the exact trigger will be, but if the real economy does not keep pace with this market rally, I’m convinced that stocks will eventually falter. The longer the current trend continues, the more likely we are to run into a no-win situation, where bad news is bad because the Fed is out of bullets, but good news is also bad because it signals less easing.
Some specifics regarding recent portfolio moves:
I recently sold my remaining stake in Best Buy (BBY) once it became clear that the buyout I had been hoping for was not in the cards. Fortunately, by the time I sold, the company had regained the bulk of its recent losses anyway due to a better-than-expected holiday season.
Only a couple months after vowing to be more discerning about taking on new individual stock positions, I have already decided that below $425-per-share, Apple (AAPL) was too attractive to pass up. I had my eye on the stock ever since it dropped below $500, and at this point, I believe the company has a unique combination of low PE, incredible balance sheet, and potential for further growth.
If the economy does improve, I think Apple will be due for a huge rebound. And even if the rest of the market tumbles, it’s hard for me to see Apple tumbling much further given their earnings and mountain of cash.
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