Santa Arrives In The First Week of December

By December 3, 2010Weekly Writeup

The S&P 500 had shed -4% in just 3 weeks. By November 30, the benchmark had dropped from 1225 to 1175.

Short-sellers were celebrating the commotion caused by European debt contagion. Others were pounding the table over inflation in China. And bears were literally clawing at the walls in their caves over the North Korea-South Korea flare-up as well as the lame-duck Congressional stand-off.

Ultimately, the doom-n-gloomers proved premature in their calculations. Beginning mid-day Novmeber 30, S&P 500 stocks reclaimed all 50 points to finish near the 52-week highs once more.

Short-lived correction? Probably. If stocks can rally in the face of ongoing tax policy uncertainty, euro-dollar “doubts-a-plenty,” and a miserable jobs report, the sensible course is to stick with the trends. (And all of the trends are positive!)

The current prices of the S&P 500 and Vanguard MSCI Emerging Markets (VWO) are above key moving averages:

SPX 50 200

VWO 50 200

What’s more, the CBOE Volatility Index (VIX) has hit its lowest level in more than 6 months:

VIX 200

As it currently stands, your going to want to stick with the recommendations that I have been making all year long. In particular, you should maintain your commitment to “broad market emerging stock funds like Vanguard Emerging Markets (VWO). Surround your core holding with several low-risk emerging countries like Malaysia (EWM) and/or Chile (ECH).”

When it comes to U.S. equities, you don’t always have to think large. In fact, it sometimes pays to think small. Really, really, really small.

Consider the following: Since the U.S. market bottom in March of 2009, we’ve heard a great deal about the smallest businesses having difficulty getting access to credit for expansion; in contrast, only the biggest companies were able to shore up their balance sheets, sock away loads of cash and/or borrow for ridiculously low rates in the bond arena.

Let’s assume that these headlines have been accurate. Then who are the intrepid investors willing to put dollars into Micro-Cap ETFs? Brave souls have witnessed iShares Russell MicroCap (IWC) significantly outperform the S&P 500 SPDR Trust (SPY) since March of 2009. So if you believe that the U.S. is genuinely rising from the ashes of the Great Recession, you shouldn’t overlook the micro-cap space.

IWC Since March 2009

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