While the markets aren’t selling off too strongly today, the stocks of several recent leaders are.  What is interesting to note is that the declines in these names aren’t related to any fundamental disappointments.  Instead, they may reflect a resetting of expectations given rising recession concerns and a more measured Fed response given recent inflation data.  

As we said in last week’s blog entry, all stocks do poorly in a recession whereas growth stocks still shine in economic soft landings.  The recent crack in some of the leading growth stocks today and in recent days tends to support the notion that the markets are beginning to discount a rising probability of recession.  While we believe a soft landing is still the most likely outcome, we’re also being far more patient with the proceeds of a few recent sales in our portfolio.    

The markets usually enjoy a “Santa Claus” rally during the last week of the year, between Christmas and New Year’s.  Most folks that would normally be trading typically are at home with their families.  Even the perennial pessimism of market bears hibernates for a short time, replaced but for a moment by more jovial moods.

This is the third time since August that the markets have retraced recent gains to former lows.  Each time, the Fed has played a major role in marking the inflection points, both to the upside and downside.  In a season that celebrates the Saviour, Ben Bernanke need not fool himself into thinking he is one.  

But milk and cookies might not be a bad idea.