Holding On Until June 30

By Duru

June 21, 2004


June 30th has been touted as potential nirvana to relieve us from the funk the stock market has been stuck in. For weeks now the market has just bounced around from tantalizing pops suggesting a real run has finally arrived to depressing drops implying the bear market was finally ready to make its official entrance. Even the technicals suggest to us that a major move is imminent. Instead, nothing has yet been made clear except the frustration the bears and bulls must feel alike.

It seems that no one is ready to commit to real selling or buying until we see what the Fed does with interest rates and how well the US pulls off the transition of power in Iraq to its citizenry. Both events occur on June 30th, and it seems the market desperately wants to avoid any false moves until its crystal ball shines brightly on Greenie and Iraq.

Ironically enough, with so much focus on this date, you can pretty much bet that market has already gone about pricing in its best guess as to what will happen, and how it will matter to economic growth here in the hinterland. So, instead of holding on with baited breath for June 30th, we should be looking beyond this date. What I see is a Fed that will continue to raise interest rates. So, if the first hike matters, will additional ones matter more or less? Hard to tell (lots of folks have prognosticated about it). What I see past June 30th is an Iraq that will be no more stable than it is now. Terrorists, militants, insurgents, lunatics, and the like, will not suddenly be placated and pleased with this transfer of power. If anything, they will get even more determined to undermine what they must see and understand to be a horrific (for them) process underway of putting the Middle East firmly under American control. I also see that most analysts have forecast decreasing rates of earnings growth for many companies and for the entire market. For example, the Semiconductor Industry Association has already admitted that the future does not look nearly as good as things are going right now. So, we must wonder whether market participants will continue to pay high prices for stocks in the face of slower growth and a higher discount rate on the earnings that will be coming.

Finally, sooner or later, the market will start worrying about the Presidential election again. Conventional wisdom has said that Bushie is a friend of the market and Kerry is a meanie. I have argued that Kerry should win in a landslide. So, if my crystal ball is truly dust free, we should see a rise in market politico angst sometime by mid to late summer.

All said and done, June 30th looks more like a pause on the way to reality than a final rest stop at the end of a race between the bull and the bear. Maybe the market technicians and players can keep us in suspense for another nine days or so, but we might just wish for a return to such blasé days. Should be "interesting" to say the least!


Be careful out there!


Ó DrDuru, 2004