Market Update

2011 was a very difficult year to invest in the sense that in most cases, markets ignored company specific news and instead chose to focus on headlines coming from Europe. As I wrote previously, U.S. companies results and overall news from U.S. economy have generally been quite positive. This contrasted with fears of debt crisis in Europe spreading out of control. So we had this tug of war between these two forces in the markets, resulting in very high volatility and not much overall movement.

The upcoming earnings season will shed some light on the health of the U.S. companies. If the news continue to be good (and I think they will), absent any major headlines from Europe, stocks are likely to start reflecting their fundamentals and move higher. Indeed, this first week of the year was quite good. On the other hand, the specter of European debt issues will continue to haunt the markets for some time, so we can expect the volatility to continue. In this kind of environment, diversification and selecting the strongest companies will be critical.