Let’s start today by going back to yesterday, another in a series of volatile days. I think the market took my advice a bit too seriously, as all the major indices dropped with gusto. I am not sure why, but it seems the buyers simply ran out of gas.
- Stocks took on some water today, but it can’t be a complete surprise. I think it was yesterday we pointed out the S&P 500 had rallied more than 6.0% in four days, which is a tough act to follow. A lull was likely – even necessary – to let the bulls regroup and renew their effort. That regrouping isn’t apt to be done yet though, which is my way of saying the selloff isn’t likely to be over yet.
Maybe the bulls sensed weakness with the bears, or maybe they strategically waited for yet another buying opportunity. If the latter is the case, they got it yesterday and today they have regrouped strongly, at least this morning.
It also appears the market is blowing off my sagacious advice completely. Okay, fine, be that way, but I will still offer it – Slow down, take small bites, and stay in balance with earnings and the economic fundamentals.
- It’s good to see good numbers in any company, but if we’re looking at headwinds like currency and slowing global growth, seeing multinationals like Caterpillar and 3M post solid beats gives us confidence that economic growth is holding on and probably better than the market is currently expecting.
Not bad for an international company that sells really big trucks and even bigger cranes and other such heavy machinery in places such as China and Europe. Both of those “countries” are on the celebrity analyst hit list as economic failures dragging down economic growth (okay, so Europe is a bit of a drag).
It logically goes, then, that Caterpillar must be selling its big stuff in places other than Europe, but, the fact is, it is selling it somewhere, and in a big way. Along with its stellar earnings reports, it also offered an increase in its full-year profit forecast.
Here we are. The market is way up after it was way down, so nothing has changed in the recent pattern of extreme volatility, irrationality, and incomprehensibility. Nothing has changed in the longer-term pattern of buy the dip. Even with yesterday’s “dip,” the market is losing its fear. Check out the VIX.
The “fear index” has dropped 10%-plus today and it now sits in the 16 zone. Heck gold is even dropping again after a brief flirtation with a bust out. These two indicators tell us much about the current market state, as does the Russell 2000 (RUT) and the S&P Mid-cap Index (MID). Both have tracked the Dow and the S&P 500 in the last five days, which is different than the divergence we were seeing in the early days of this recent volatile market behavior.
- With 27 percent of the S&P 500 having reported, 68.9 percent have exceeded profit expectations, according to Thomson Reuters data, above the long-term average of 63 percent.
Yes, it is still early in the reporting of earnings, but the market must have a sense of how this “season” will turn out; otherwise, why the buoyancy, especially after the Markit manufacturing report came out today?
- The U.S. manufacturing sector slowed in October to its lowest rate of growth since July, while a gauge of new orders hit its lowest level since January, an industry report showed on Thursday.
Again, a monthly report does not a trend make and the trend for US manufacturing is strongly upward. Don’t forget the recent utilization and capacity measurements were high, both showing strong year-over-year increases. Maybe the combination of positive earnings and positive economic fundamentals are giving the market a boost. Could that really be?
In any case, oil prices are still weak, and as a reader points out, the industry is struggling, which, if one gets past the nonsense that lower commodity prices are bad for the economy and the market, one might see what the market sees 6-9 months out – a healthier US consumer.
- I think I should perhaps wait until the oil industry is not struggling and then trade in my oil investments for more environmentally conscious investments.
I agree, but it might be some time before oil makes a big comeback. Overall, though, your thinking is spot on, both from a social and financial perspective. Keep in mind, though, not all environmentally conscious or “green” stocks or funds are made the same, meaning, some are strong performers and others are trying hard. Think alternative energy here.
Trade in the day; invest in your life …
