Where to now...

After an absolutely awful August it could be time to regroup for a late year rally. I say this despite the fact that most analysts are calling for a pullback. I believe the pullback already happened, I mean it was a dreadful month in August.

The S&P was down 5.3% in August, and 7.4% since July.
The DOW was down 4.7% in August, and 6.8% since July.
The NASDAQ was down 7% in August, and 7.5% since July.

I think a lot of people would consider a pullback to be 5% - 15%, which puts the last two months squarely in the pullback range.

The other reason I am not convicted there will be a pullback is the worldwide economic situation. Europe is going through drastic uncertainty, and many investors are pulling out from EU based investments. That money has to go somewhere else. China has been ‘cooling off’ for the past year plus, and many are predicting the end of their double-digit growth run. That in turn will mean some investors will get out from China too. Again, that money has to go somewhere.

This money tends to come to ‘safer’ plays. We saw when the US was downgraded by S&P that there was virtually no impact to the bond market. US bonds should have fallen based on the “loss of top rating”, instead they actually have gone up… why… Because the US is still perceived to be the safest place to put your money. Whether that is true or not is a whole other debate. My point is that I think it will play in the favor of the US markets.