So, things are looking bleak out there in market land. Or so says the breathless media. No doubt, the market is taking a hit, but, as usual, sensationalism trumps depth. Where is Paul Harvey when you need him? Someone needs to tell “the rest of the story” about the market these days. Okay, so I am no Paul Harvey, but I can give you my take on the missing pieces.

  • Since closing at a record high near 1,710 on August 2nd, the S&P 500 has lost 4.6%. The Dow Jones Industrial Average has dropped 5.6% in the same period. It’s still a long way from the 10% loss required to fit the “official” definition of a correction, but anything more than 5% demands some attention.

True. As I have been saying of late, this market does “demand some attention.” With the US on the verge of sending devastating missiles into Syria and the QE tapering nonsense still playing in media theaters near you, one needs to pay attention to one’s trades. But, let’s not get confused as to what is happening out there – the market is falling on small volume, traders trading on fear and speculation. Just look at the recent rise in the price of gold and oil to see that. Neither has a fundamental basis for going up, but they are going up. Let’s not get sidetracked by sleight of hand, myopic vision, and the bears shouting.  

  • To be sure the news flow has been disappointing. Despite decent economic data, the retailers reporting earnings over the last 2 weeks suggest Americans are reducing their spending. When Walmart and Target both miss earnings estimates and guide lower, it’s a bad sign. This is America. If we aren’t spending money something is very, very wrong.

Again, is the above voice seriously suggesting America has a problem spending? Heck, Tiffany’s just announced better-than-expected earnings and increased guidance. True, the sales increase comes mainly from Asia and Japan and American sales are flat (small increase year over year). Nevertheless, in today’s global economy, consumers are consumers.

  • Sales at stores open at least a year in Asia, except for Japan, rose 13 percent in the second quarter ended July 31, helped largely by China.

Okay, I am drifting off point. The issue is the American consumer and the claim that “something is very, very wrong” in America. Is it? Does the American consumer feel this way?

  • The Conference Board’s Consumer Confidence Index for August came in above expectations, following a pull-back in July. The index was reported at 81.5, which was above the consensus expectation for a reading of 80.1 and also above last month’s revised reading of 81.0.

Keep in mind, this is the highest reading in over two years. As well, for comparison, in January of this year, the reading stood at 58.0. I can also add to this that retail sales overall (minus Walmart) are not bad. Disappointment is a relative term. Slight increases year over year does not mean the sky is falling. Not meeting expectations does not mean the American consumer is not present. Wow, a triple negative!

Anyway, consider that most everything about the rather expensive housing market is good. Home prices are rising because resale demand is high and the inventory inadequate. Home Depot and Lowes are kicking butt, which suggests consumers are putting money into their homes. Oh! I almost forgot about the other big-ticket item – auto sales are way up and rising. The “American consumer is dead” canard is stale and stupid.

As for the market, well, let me return to something I said about the summer market a while back. Traders trade to make profit and when those profits are threatened, fear and speculation cause sell offs. The breathless media helps with this, as do those who short the market, you know, the perma-bears. So, when something such as Syria happens, well …

  • As for the Syria thing, as tragic as it’s been – and as ugly as some think it could get – I still don’t think that’s why stocks are falling. I think that’s the convenient excuse the media is using; newsmakers desperately need to link an effect to a cause. Syria is the most obvious cause, but it’s not the real one. No, I think the reason stocks are falling is mainly because the market as a whole has just decided now’s the time to take some profits.

In the end, I am not convinced the recent sell off (remember April and July) is long lasting. The economic fundamentals, although not exceptionally strong, are steady and consistent over time. As long as the economic fundamentals remain that way, any market sell-off is short lived.

Now, having said that, I will say this – unless some bad geopolitical event happens that upsets the apple cart. Think Syria.  

Trade in the day; Invest in your life …

Trader Ed