So now that we've gotten January's swoon out of our system, and we're no longer perturbed by delivery of our monthly account statements, what's the best thing we can say to describe the Dow Jones and S&P at this moment?
"It's
lonely at the top and we need another moment to assimilate the speed of the
recovery."
Funny,
how the sheer emotion of rapid market swings seems to destabilize even the most
stolid of investors. On its surface,
investors are warming to the idea that fundamentals are improving (wages,
employment, profits). Exploring further,
however, many pundits are pointing to rather modest year-over-year comparisons,
excessive political negativity, and a widening gap between those who truly are
beneficiaries of economic "good news" and those who simply read about
it in the newspaper.
In
case you haven't been following, earnings forecasts are tepid, at best, and
under significant pressure from the high dollar and stagnating global
demand. The recovery in the commodities
sectors over the past 6 months are reflective of an increase in (core) raw
materials costs. Coupled with these
additional expenditures, as well as wage increases and benefits outlays,
corporations are beginning to mutter under their breath...and to anyone else
who will listen...that they may have a difficult time increasing earnings
acceleration rates. You see, to them an
acceleration in economic activity is actually a wet towel in the face for their
stakeholders. Haven't we heard this pity
party before (e.g., banks and the financial sector)?
What
troubles me more than the audacity of corporations verbalizing their lament at
the commencement of an economic recovery is that there isn't a stronger
response from market analysts, politicians, and others to account for an
abundance of counterweighted arguments.
Yet, at nearly every Wall Street analysts' conference, we are inundated
with stories of giant multinational corporations either being
"forced"(in their words) to increase costs or "go slowly"
in their new hiring in order to maintain profit margins for shareholders. "It's
Europe", they exclaim. Or
"the emerging markets" or "China". Everything,
everybody else is responsible for a difficult pricing environment and shallower
demand. Are corporations, on balance,
joyful that we are no longer in a severe economic recession? It really doesn't appear to be so.
How
do analysts respond? Well curiously, the
brokerage and financial sector companies don't really care, because whether the
markets are up or down, the economy rising or falling, panic and indecisiveness
still create market "action" which is good for their shareholders!! Which leads one to ask, "is anyone
watching out for you?"
As
with all things economic, political, and moral it all boils down to the average
citizen and his/her tolerance to take it on the chin. When their patience finally runs thin, you
might expect some major philosophical reorganization.
On schedule
Certainly, for what some consider to be a new (positive) cycle in the stock market, there are some mitigating factors to consider. For one, as we discussed last week, it is always a poor idea to think that stock market performance is calibrated on a linear trajectory...up or down. While it might be the case on rare occasions, most usually the market moves in a kind-of parabolic continuum. If that's the case now, then we already have completed the "left side up" configuration of that parabolic cycle during February and March. April has already given indication of some indecisiveness at the top. One might reasonably expect a short lull, a pullback, or a congestion while certain groups digest the magnitude of their price increases. Here is a case where the technical part of market analysis outweighs longer term fundamentals on a temporary basis.
Hang
tight, because there's another (stupid) Wall Street axiom that's just around
the corner....."sell in May and go
away."
We'll
see....
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