Do you ever wake up, look around, and for a moment think, “This all seems so familiar, as if it has happened before?” I suspect that feeling of deja vu is not common for most of us, at least it does not happen all of the time, but it is becoming more common for me as a market watcher.
The market selloff in February seems all too familiar. The market starts off the year with a bang. The bears come out of the woods to growl about a correction. Pundits on both sides tell us why the market will or will not correct. Europe then burps, the bears get their way, and then the breathless media tells us, again, that the EU debt crisis is on the verge of flaring up, again. Yup, it all seems so familiar …
I will admit, though, Italian voters giving power to a comedian and a clown is a reason to think about taking profit. Of the two, however, the latter is scarier.
- Berlusconi added that he was not worried about a negative market reaction to the vote or a possible increase in Italy’s borrowing costs.
He might not be worried because he is rich, but he holds within his grasp the fortunes of millions around the world …
Assuming the Italian comedian and the Italian clown form a government that is amenable to the economic path Italy is now on, I suspect the market will continue to move … oh wait! Stupid me! We have our own set of clowns running things here in America. So, no matter, the market might continue to swoon for a bit, even after it gets over its rekindled fears about Europe. The cuts from sequestration, the budget battle, and the coming fight over the debt ceiling could well keep the market spinning for a while, but all of that can only do so much damage.
As in years past, Europe’s troubles and US politicos, try as they might, cannot keep a market bent on going up from going up. And, despite what the pundits say, the market rise over the last four years is not based solely on the Fed stimulus, “hopium,” or irrational exuberance. The market has risen because the US economy has slowly grown and because of that, corporate profits have grown with it. The S&P 500 is not overvalued, nor is its trailing P/E out of whack. According to the Wall Street Journal, the P/E of the S&P 500 as of 2/22 is 17.9, a bit higher than a year ago, but its estimate for 2013 is four points lower.
Now, given this, it is important to keep things in this perspective. The US economy is still growing (the December GDP number will be raised to the positive), corporations are still beating estimates on average, and the auto and housing industries are getting healthier.
- The pace of auto sales in January would have Americans buying 15.3 million vehicles a year, just below pre-recession levels. In 2012, auto sales were the highest in five years.
- Homebuilders large and small are reporting big gains in new orders as prices rise and the supply of homes on the market dwindles. In January, the inventory of existing homes fell to a 13-year low and U.S. home prices picked up in December, closing out 2012 with the biggest yearly gain in more than six years
The “correction” in the market is normal, healthy, and expected. It just might go on for a bit in the near term, but as the fears about Europe abate and the US politicians finish up their theatrics with deal after deal, the market will do what it does – look to the fundamentals of the US and global economy and to corporate earnings (deja vu again?). So, if you want to make your money work, you should do the same. Oh, and speaking of that …
- The surge [in the auto industry] has led Michigan Precision Swiss Parts, which makes fuel-system components for Ford and Navistar engines, to expect its sales to climb by 8 percent to 12 percent this year.
Trade in the day; Invest in your life …
