So, the market is down after being up yesterday and nothing has appreciably changed in the world. All I get is more nonsense about the Fed, “to taper or not to taper, that is the question.”Is this really an issue, or is it an excuse? How about this? The market runs up some 30% in six months, it becomes a bit out of balance, a bit top heavy, and folks begin to take profit and that profit taking becomes infectious. Then, as the market makes a sudden and rare move down, buyers step into the dip and buy. Now that makes sense to me.
- May has been another great month for stocks, and we look to be headed for a strong finish as the daily dose of data is giving investors confidence to either hang in or get into a market that moved almost 30% in 6 months. But the same cannot be said for the bond market which is taking all this ”good news” very poorly, with the 10-year Treasury yield moving from 1.60% to 2.12% –an astounding 50 basis points in just four weeks.
Now, what do we make of the bond market move? Is this a good thing or a bad? Does it suggest folks are less eager to trap their money in a low-yield investment and they are more willing to take on risk in the market? On the other hand, is it bad that rates are rising without the Fed actually doing anything?
I would also ask, what impact will rising rates have on US economic momentum and the housing market in particular?
- The Mortgage Bankers Association said interest rates on fixed 30-year mortgage rates surged 12 basis points to average 3.90 percent in the week ended May 24. It was the highest level since May of last year and the biggest jump in 14 months.
One can look at the above in two ways. Rising rates will drive more buyers into an already light-inventory market, thus driving prices up higher, or rising rates will curb the rapid rise in prices because potential buyers will sit back to see what rates will do? My suspicion is that rising rates will act as brakes on an overheating market, but that is just suspicion. We will see what will happen soon enough, especially if money does continue to flow out of bonds into the equity market.
- 2013 continues to be brutal for bears betting on the collapse of consumer spending. It’s just not happening. Shorting with the vague notion that consumer behaviors are finally going to give up the ghost and save continues to be a horrible plan.
One can only hope the shorts in the market get this reality – consumers are spending and with the consumer-confidence report yesterday, it appears they are going into summer in a pretty good mood. This is just one more indication that the market wants to go up and probably will throughout the summer.
Speaking of consumers spending, what’s going on outside the US?
- The big surprise in Tiffany’s quarter was the strength in international markets generally and Japan in particular. On a pre-recorded conference call the company said, “without a doubt Japan sales growth in the quarter exceeded expectations more than any other region.” Oh yeah, Europe grew at 6% too. Yes, Europe.
Tiffany’s sells jewelry and not just the cheap stuff. It appears that consumers in Japan and Europe are letting go of dough to get pretty, which speaks to a whole different level of spending – discretionary. Folks across the waters are choosing to buy the glitter and the bling.
The world economy is not perfect, but is not dead either, so that brings me back to the reason for the recent market volatility – profit taking in fear mode. All in all, I like to see the market step back from its lofty heights, to rebalance and consolidate, and profit taking is much, much better than selling at any price just to get out.
- “The global economy is strengthening gradually, but the upturn remains weak and uneven,” said OECD Secretary-General Angel Gurria. “Supportive monetary policies, improving financial market conditions and a gradual restoration of confidence are at the root of the recovery.
As I said, the global economy is not dead; it is getting better, and this will take even more time, but in the meantime, buy the dips and don’t sell the rips, unless you are doing the buy and quick sell strategy. If you are looking more long term, buy the dips and then go spend some money this summer on a nice vacation. Think of it this way. You are contributing to your own retirement with every dollar you spend.
Trade in the day; Invest in your life …
