14 Feb The Lato Letter: Volume 1, Issue 4.
The strength of North American equity markets so far this year has been a very welcome surprise. The other welcome surprise is that the co-relation among stocks so far this year has come down dramatically from last year’s everything up and everything down together market.
The chart below depicts the reduced co-relation as the S&P 500 index is back to its highs of last spring but far fewer stocks (the white line) are making new 52-week highs. A market optimist might say normalcy is coming back to the market and that the market leaders will continue to lead the market higher. A market pessimist might say that the rally this year has been led by a few big-movers (i.e. Apple, Caterpillar and Visa, to name three) and is vulnerable to a decline. Not to be seen as sitting on the fence, but in the short term I would agree with the pessimists that we could see a pull-back. However over the balance of the year, the market and its leaders and especially the three stocks named above are all still very reasonably valued and have further upside potential over the next several months.
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