S&P Shocker

Several people have asked me for a view on where the S&P trades to this year. Well, sitting at just about 700 currently, I have no idea where we will end the year. However, I would not be surprised at all if we saw 550 at some point this year. That's 21% lower than where we are today.

That possibility presents a major challenge for professional money mangers. Their overriding fear is missing the "bounce" to a level of 900 or greater. The bounce may well happen as a result of further government stimulus, or some other unforeseen boost to the economy, or for no good reason at all. So money managers risk not being invested at the time of this bounce. The problem for the pros is that the move to 550 may come first!

The above situation is the cause of much of the deer-in-headlight expressions seen up and down Wall Street. So, in terms of stock investing, my fundamental view is that company earnings will in general get worse, but you will be able to find companies that are out performing or whose stock has just been bid so low that it rallies with any kind of slightly positive company-specific data point (see February's UEIC post). So, in sum, this market favor's the cliched "stockpicker".

This viewpoint begs the question, why are there not more actively managed (defined by me as a product where the manager is attempting to make positive returns in all kinds of market conditions, and has the leeway to do so) products available out there for the average investor to include in his or her portfolio? Where is the hedge fund for the common person?

-2outof4