Terrific Tuesday

Terrific Tuesdays continue as the Dow Industrial Average was up this past Tuesday over 100 points.  The past 11 weeks has seen the DOW Industrial Average up 964 points on Tuesdays, while the rest of the days have fallen approximately 70 points.  Based on Wednesday’s action, it appears that trend is continuing.

Interest rate sensitive investments are being hit the hardest as rates continue to climb.  Fixed income investments, income producing real estate, and other rate sensitive sectors are in the midst of a correction.  Is this a correction or is the beginning of longer-term increases in interest rates?

As for the overall market, bullishness still concerns me.  AAII (The American Association of Individual Investors) reports their lowest levels of bearish advisors in well over a year and the VIX Index, which measures fear levels in the market, is below 14.  A reading below 20 for a six month period is historically met with underperformance the following six months.

On the positive light, the Fed continues with its bond buyback program.  This appears to be a conflicting positive though since if the economy was doing as well as many reports suggest, one would think we wouldn’t need the buyback program.  Nevertheless, employment continues to be stronger than expected, especially considering sequestration.  This week’s report on Thursday will be a market mover.

Longer-term, I am cautious due to the upcoming Fiscal Cliff discussions, which will certainly involve more rhetoric of higher taxes and cuts to important spending entitlements.  Also, just how much longer, if employment continues to strengthen and the economy continues to chug along, will the Fed buy back bonds?  Over the past 3.5 years, the market hasn’t responded well after the Fed has stopped their quantitative easing programs.