Market Power Up

The Cyprus Bank heist reminds us that the European debt crisis is far from over. The market is slightly off, but after a huge last ten days.

Some private sector job growth and a modest drop in jobless claims contributed to the commentary accompanying a 485 point 10-day gain. The Dow jumped from its March 5 push through its 2007 pre-great recession peak, to 14539, or up 11 percent for the year. In two and one-half months, it has nearly equaled last year’s entire 14 percent gain.

After four years of being on the sidelines, individual investors returning to the market seem to be driving the latest Dow surge. Regret for having already missed the market recovery since bottom of 6547 in March 2009 and fear of missing a 20-point plus year has overcome the caution that restrained smaller investors.

The risk calculation appears justified, but the market’s continued gains must overcome the sequester’s likely falloff in federal job growth, the black swans that Cyprus represents and the growing resistance to Federal Reserve’s near zero interest rate strategy.

What should be remembered is that the market recovery of 2013 has not recreated the world marketplace or the domestic economy of 2007. China’s and Europe’s prominence, Washington’s fiscal gridlock, baby boomer retirement, and Fed policy are new elements of this decade’s financial environment that must be incorporated into an investor’s strategy.