Now we have but a handful of stocks rising smartly and the hope that our markets don’t crumble from weak knees (see chart below). Signs are out there alright, we just have to be cognizant of them and how we choose to play in a different environment.
The markets are all about cycles – oh, wouldn’t we just love a virtuous bull cycle where nobody loses money (unless you are a bear), the land of lollipops, sweet cream and sugar plums. We know of course that is just not reality.
The markets are now entering a period that may limit returns – even for the remainder of the year. Are you prepared to deal with that?
As we know, markets are the great discounting machine. The current market is looking forward about six-eight months in the economy, ironically that is around where the election will fall.
So, with much uncertainty and angst right now it probably mirrors the uncertainty that will be revealed after the November election. If there is one thing markets hate it is uncertainty – and it seems far too premature to crown a winner in the Presidential election.
There are too many issues to be addressed and settled – heck we have polls saying so many different things but in reality we won’t have a clue until November. What if Romney wins? How will that change the course of direction? What if Obama wins re-election?
Is that going to put a hole through the economy, which is just trying to get off the floor from a horrible beating?
The Fed has a two day meeting next week and will be followed up by a press conference by Chairman Bernanke. We will likely hear much of the same language and concerns from the past several meetings: the recovery is slow, unemployment is too high, accommodation will remain in place as inflation expectations are at the high end of our preferred range.
They may also talk about the uncertainties in Europe and a potential economic slowdown. While some of the rhetoric out there may be for more stimulus, there will be no QE3 nor any promise of it, rather just a ‘cloud’ overhead to keep everyone wondering (the Bernanke put is alive and well) just in case.
As I’ve said many time the Chairman is a master of psychology. He will supplant whatever it takes to make you feel better – after all, isn’t that what we all want? Won’t investors come forth if they feel there is not much volatility? Won’t companies spend and hire if they can accurately forecast their business future?
I’m a bit concerned about the latest economic data and how it may translate into Q2 GDP performance. Job growth may have started to retreat, industrial production is trending down and perhaps retail sales have peaked for the time being.
High gas prices have only been a complaint so far rather than a stumble for the economy but clearly the US economic engine may not be revving up as we would have hoped. That does not mean we are heading for a recession – far from it unless some outlier event occurs.
While much of the nation is mesmerized by the sensational performance of Apple stock the attention is pulled away from other great stories. Facebook is coming out in a month – the most exciting new issue to hit the scenes in nearly a decade. It’s almost May – and we all know the phrase. Let’s see if there is truth to it this time around.
Category: Market Commentary