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Lane Asset Management Market Commentary February 2013

Lane Asset Management Market Commentary February 2013

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Published by Edward C Lane
Stock market and economic commentary for February 2013
Stock market and economic commentary for February 2013

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Categories:Types, Business/Law
Published by: Edward C Lane on Feb 09, 2013
Copyright:Attribution Non-commercial


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Economic and Market Recap January started off with a bang and never looked back. As I reviewed the events of themonth, what stood out was that there was afair amount of good news and precious littlebad news.On the good news side was a continuing storyof companies reporting earnings beating ex-pectations. Nearly 70% did so in the month,beating the statistical average by 8 percent-age points. Economic data was also strong asDecember housing starts and jobless claimsboth beat expectations while China reporteda surge in exports. Also driving stock prices
 was pure demand as investors poured recordamounts into equities. The second week of  January saw the largest inflow to equity fundssince 2008.On the negative side was a lower than ex-pected GDP report for the Q4/2012. But
even that didn’t slow the bulls for long as the
details showed that some of the decline wasdue to slowed government spending followinga more robust Q3.Investment Outlook 
I believe the long term investment outlook re-mains positive. Earnings are beating expecta-tions, the economic recovery continues to im-
Stock Market Commentary
February 9, 2013
Lane Asset Management
“The future ain’t what itused to be,” said Yogi
Berra, and I think thatmight apply to the stock market, as well. Assummarized in my 2013Fearless Forecast, anumber of analysts werepredicting 2013 equityreturns of 10%, more or less. Since Januarybrought us nearly half  way there, I think it would be optimistic, tosay the least, to expectthe current pace to con-tinue. So, the questionbecomes. is there goingto be a period of drift or might we see a moresignificant correctionalong the way. My feel-ing is the latter sincethis has been the histori-cal pattern going back over many years.Should you be con-cerned? That dependson your long term out-look and your tolerancefor volatility.
prove (even if not as fast as we would like), andgovernment policy makers have proven that theyare not quite ready to take away the punchbowl. We might even anticipate something good comingout of the sequestration (spending, or lack thereof)debate, though not without a certain degree of drama.The fact is, this seems to be a good market for both equities and income-oriented investments,though not all segments of either. The ultimatedriver of equities, corporate earnings, continues tobe positive and P/E ratios appear reasonable(though not so much for the normalized 10-year Shilling P/E ratio). On the income side, while gov-ernment bonds are in bubble territory and invest-ment grade bonds are sputtering, there are other 
income “plays” that remain quite attractive.
The biggest concern facing investors today seemsto be the pace of the market over the last 2 1/2months, where the S&P 500 has gained nearly 12%,and the likelihood is of some steam coming out of the market in the coming weeks or months. No, I
don’t want to forget our friends in Washington.
They are sure to trip things up along the way. But I
don’t expect those problems to be long
-lived.For now, I would stick very close to broad equityindexes, both domestic and international. On theincome side, I would look into preferred stocks,floating rate corporate debt and municipals.
The charts on this and the following pages use exchange-traded funds (ETFs) rather than market indexes since indexes cannot be invested in directly. The ETFsare chosen to be as close as possible to the performance of the indexes while representing a realistic investment opportunity. Prospectuses for these ETFs canbe found with an internet search on their symbol. Past performance is no guarantee of future results.
SPY is an exchange-traded fund designed to match the experience of the S&P 500 index adjusted for dividend reinvestment. Its prospectus can be found online. Past performance is noguarantee of future results.Page 2
Lane Asset Management
Last month, I recommended caution with regard to domestic equities
not a lowering of exposure, but wariness about adding exposure in light of the run-up since last June and December. In addition, I was con-cerned about the strength in emerging corporate earnings and the dysfunction in Washington. On a techni-cal basis, while the trend remained strong, the momentum seemed to be slowing. It turns out that, for Janu-ary, at least, those concerns were unfounded as the market continued to plow ahead, corporate earnings ex-ceeded expectations, and tax rates were settled in the fiscal cliff negotiations. On a technical basis, trend overwhelmed momentum.Now, as we enter February, while trend remains strong, momentum (bottom indicators) is slowing and reaching levels consistent with a correc-tion as was true last March and September. From a support/resistance standpoint, we are in uncharted territory as the index seeks a new lineof resistance. My sense is to continue to advise caution about adding new positions. Even though economic indicators are generally positive, we
are even more extended on the bull run and the jury is still out on the handling of the “sequester” in Washington. It’s not
impossible that the
run continues longer, of course, but I wouldn’t rush out to buy more domestic equities at this stage.
S&P 500
VEU is an exchange-traded fund designed to match the experience of the FTSE All-world (ex U.S.) Index. Its prospectus can be found online. Past performance is no guarantee of futureresults.Page 3
Lane Asset Management
In some contrast with domestic equities, I was bullish on international equities last month. Trend wasstrong as was momentum, and international equities were outperforming domestic. While January was agood month for international equities and the trend remains strong, momentum has clearly slowed as theindex approaches the next line of resistance around $49. As with SPY, the momentum indicators are atlevels consistent with a pullback in prices. Therefore, I have moved to a more cautious stance with inter-national equities
basically a holding pattern until my expected correction occurs. As for individual re-gions, my advice is the same since there appears to be much consistency across the globe.
All-world (ex U.S.)

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