Back to the Highs… Now What?

More than 75% of Greek bondholders agreed to the swap nearly assuring that the deal will go through. That good news, in combination with yesterday’s strong ADP employment report, gave investors a reason to get back up to the old highs around 1370. However, we’ve been lingering around this spot for a few weeks.

What happens next???

Unfortunately the path ahead is not crystal clear. I see 3 potential outcomes for the stock market which I will share below (from most to least likely):

1) Melt Up to New Highs: The bull market has been running strong for a few months. But really the last month has been more of a slow melt up. Where over the course of a week there may be 3 up days and 2 down. Each week’s modest gain doesn’t look like much until you pull back to the big picture and find that it indeed is a breakout out to new highs. This would have us on course for 1400 by the end of March in time to see what earnings season has in store.

2) Consolidation: We have already come a long way in a short period of time. Perhaps investors can quickly forget the recent Greek tragedy and focus in on the surprising health of the US economy. In this case, the bull run stops here and plays in a 3% range (1330 to 1370) awaiting the results of earnings season in mid-April.

3) Rage Higher: Perhaps investors can quickly dispense of the recent Greek tragedy and focus in on the surprising health of the US economy. If so, then we rush up to new highs of around 1420. Then perhaps a modest consolidation before earnings season begins.

Again, I see #1 as most likely. The next step for you is to determine which scenario you believe in and then align your portfolio accordingly.

However, I bet there are many of you who are unsure of what will happen next. And are tired of chasing the ups and downs of this market. Instead you’d rather have an investment approach that helps you top the market while still being able to sleep soundly at night (no matter what Mr. Market is doing).

Best,

Steve Reitmeister
Executive VP, Zacks Investment Research

INTERVIEW: EU Crisis Still Focal Point In 2012 – Swiss Re

By Vladimir Guevarra
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)–The European sovereign debt crisis will still be a key focal point among investors this year, and reinsurer Swiss Re (SREN.VX) will be closely watching its effects on investment markets, a senior company executive said Wednesday.

“The European sovereign crisis clearly has yet to be resolved. We’re watching that carefully and looking for signs that European leaders will put in place not just temporary measures but structural measures to address not only the debt situation in the medium term but also the long-term issues a number of countries are facing,” Swiss Re Chief Risk Officer David Cole told Dow Jones Newswires.

Cole was speaking on the sidelines of a briefing by the World Economic Forum on emerging global risks, in which he was a speaker.

“We haven’t adjusted our investment approach for 2012. We remain cautious and have a conservatively positioned portfolio. Buy we have to be alert and watch for developments that could lead us to as yet further de-risk our portfolio, but we should also be willing to invest,” he said.

“Quite a number of the sovereigns in Europe have significant redemptions coming up over the next several months, not just Greece but also Italy, France and Spain. It’s quite important that we have effective refinancing of those redemptions.”

“It’s important that EU leaders should come up with a credible and tangible response that could be put in place quickly,” he said.

Cole also said Swiss Re’s key financial targets will be in place even if a new chief executive is appointed.

Current CEO Stefan Lippe, 56, surprised the market last month when he announced plans to retire early after nearly three decades of working for Swiss Re.

Last year, the company laid out key targets til 2015: a return on equity of 700 basis points above the risk-free average over five years, a 10% average growth in earnings per share and 10% average growth in economic net worth per share.

“Those are our three financial targets. We’ve articulated them during the course of 2011 and I don’t see why a change in CEO would lead to a change in those targets,” Cole said.

-By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com