That one was for Greenie
October 30, 2003
In case you stayed inside all day, I should let you know that the country's economy clocked in last quarter with 7.2% annualized growth. This must finally be a crowning achievement of Greenie's tireless efforts to prop up the flagging economy. One must wonder where all the profits are going since the ranks of the unemployed are still near their highs for this downturn, but let's not quibble with genuinely good news. Even more amazing is that ahead of this tremendous news, Greenie and company dared inflation to come out of hiding by insisting they will keep interest rates at generational lows for some time to come. We are now standing at the cusp of a truly explosive moment for the economy. And to all this the stock market yawned today...
In what has become a regular pattern, traders and investors "sold on the good news" and started locking in profits where they could and for a while it was like shooting ducks in a pond. Normally, my bearish tendencies would roar and declare that surely this must be a sign of a top for the market. But the market has repeatedly stood its ground in the face of these declines following good news --- the happy sellers have consistently turned into distressed profit-chasers in 60 seconds flat. Given the explosive fiscal and monetary cocktail that finally seems to be working, the market can certainly prove the sellers wrong again.
What gives me even more clarity at this juncture is that STILL the general cacophony of pundits and commentators are urging caution, declaring the stock market at best richly valued, wondering whether the economic goosing is sustainable, and constantly looking for tops in the market. Everytime we get so much as a 2% decline in the market, I hear and see people seemingly on the verge of panic (or excitement if they are betting against the market) as if some major sell-off has begun. I was a bit amused when I had two different friends "alert me" last week that the market had sold off big (or was going to). I keep things in perspective by remembering how far the market has come off those treacherous lows.
While I agree that this market is ahead of the true economic picture, I must take pause when so many remain so negative. This is NOT like the days of bubbles past when nearly everyone was punch drunk and embracing the market on its march to infinity. As one pundit I follow has quipped, we have to wonder where are the Dow 10K or Nasdaq 2K parties? Why are we not getting a barrage of cheers everytime we inch closer to those milestones that seemed impossible just one year ago? Where is the breathless anticipation? It is because sentiment is NOT as bullish as you would expect at this point. Years of bearish declines have indeed caused enough pain to make the average investor quite hesitant and skeptical (all these accumulating financial scandals sure do not help either!). If I am correct about all this then there is still plenty of money out there to get sucked into the market before this particular party ends.
Of course part of the hesitation may come from the seasonal expectation that Sept and Oct are traditionally weak months, even featuring big sell-offs. While we have indeed seen two corrections, they have been mild all things considered, nothing close to the big BUYING opportunity I had earlier looked for when I called for a "Fall fall." The seasonal or cyclical pattern that looks more appropriately in place now is that the year before a presidential election is typically an up year for the markets. We even had other history on our side that says the market has only fallen four years in a row once before and that was during the Great Depression. (Please note that the market could SELL OFF hard from here until Dec 31st and STILL be up a good amount for the year!)
It is harder than ever to call this market because for the past few months it has crawled toward its new yearly highs. Everytime you think it is down, it rallies. When you think we will finally get a sustained move to the moon, the market stalls. But this is what we want. It is hard to get too excited about such a market, so the kind of exuberance that signifies market tops is harder to generate. Until I finally hear more of a consensus around the bullish case for the economy and (especially) the stock market, I have to think that my bearish sentiments have too much company to ACT upon.
So, sit back, relax, pop open your favorite financial rag, sip on a special beverage, admire your 401K statement, and hope that all this good news will FINALLY translate into a good job for those millions still looking and FINALLY convert into a raise for those of us fortunate enough to be clinging to a job. Cheers!
P.S. One thing I am watching right now as a potential indicator of things to come is that two former market "Generals", GE and Microsoft, have stocks that are notably lagging behind the general indices. In fact, Microsoft saw its stock get pounded after it reported lackluster earnings news. I think it was the biggest sell-off in Microsoft in two years or so. Either market leadership is undergoing a monumental shift, or we are seeing the leaders point the way to the stock market's imminent future. Stay tuned...