In his weekly Market Commentary dated May 10, 2010, LPL Financial's chief market strategist indicated that the market pullback that began on April 23 is a painful but necessary part of the market cycle. "The pullbacks cleanse the excesses that build up during a rally. They impose discipline by punishing speculation, rewarding value, and realigning expectations. They help to form a solid basis of support on which the stock market may advance" he wrote. "We expect the current stock market pullback is likely to be much like the 5-10% pullbacks in the last few quarters that acted like the market equivalent of forest fires--cleansing the excesses of growth and fostering the seeds of renewal--allowing the stock market to bounce back to new highs. While investors last week focused on the few burning trees, the health and sustainability of the overall forest continues to improve," the commentary continued.
"After recommending a defensive posture in recent weeks, we believe the pullback now presents investors with an attractive opportunity to add to stock market exposure. We continue to believe that rising headwinds in the second half of the year--composed of Fed rate hikes, fading stimulus, and slowing global economic and profit growth--may weigh on stocks. However, in the meantime, the current decline is likely to remain only a pullback and give way to a rebound rather than mark the start of another bear market," he noted in conclusion.
View the entire Asset Allocation page from the June issue here.