I’m writing this on Wednesday–a day earlier than usual–because I am spending the next three days experiencing my pioneer roots. I’m the designated photographer for more than 300 teens who will be pulling handcarts across some high desert terrain near the border of Utah and Wyoming. I am certain it will help me gain a new appreciation of the hardships those early pioneers endured. And I suspect I’ll endure some of my own hardships since the broken ankle I suffered a few months ago is still not fully recovered.

Today the markets experienced some hardship as Federal Reserve Chairman Ben Bernanke told members of Congress that this year’s economic growth rate will be slower than anticipated. He also said that inflation remains the biggest threat to the economy. Those comments came a day after the Dow climbed above 14,000 for the first time.

I can vividly remember when the Dow crossed 3,000 for the first time. I was working for best-selling author and investment guru Howard Ruff at the time. People in the office were cheering as the Dow went higher. I wasn’t too worried about the Dow at the time, because my personal money was invested in a Japan mutual fund. The Nikkei had been the hot market for some time and was near its all-time peak of about 42,000. A few weeks later it had dropped to 19,000 and I was still holding my position. That was my first expensive lesson about investing, but far from the last.

Despite today’s pullback, investors don’t need to be too concerned about a similar slide in the U.S. market right now. The strong upward trend is intact, as the chart below shows.

The gold line is the Dow and the black line is the Nasdaq. Both of these indices are advancing neck and neck since the market’s last bottom in March. The red line shows the nice slope of this advance. Down days are to be expected but there is little reason for investors to be concerned unless the indices drop through the trend line. During this latest surge, the S&P 500 has not shown quite as much strength as these two indices and is consequently lagging a little more than 3% on its year-to-date performance.

The latest move that began in late June has carried these indices about 4% higher. That would produce an annualized gain of more than 50%. Obviously it seems unlikely that the market can sustain that type of pace for very long. I anticipate that this move will flatten out over the next few weeks. August tends to have some of the lowest trading volume days of most years as traders and investors use the last of the summer for vacations. That can lead to increased selling because traders don’t want to hold long positions while they are away from the markets. So don’t be surprised or worried if the major indices start moving in a mostly sideways direction.

For now there is nothing on the horizon that should cause investors undue concern or worry. The economy is still strong and corporate profits are still regularly beating expectations.
F.S.

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