What is real? The question recalls youthful conversations, dialectics perhaps, in which the very nature our existence was debated. Clearly, the market dialectics is real, meaning on any given day one can find contrary opinion supported heartily by whatever analysis is used.
“My data says the market will go up; no, my data says the market will go down”. One or the other will be correct, which suggests, again, predicting the market is a 50-50 proposition for the most part. That is also real.
Here is something else that is real about the market – take away the fear and greed and you have a mindset that is cautious, a mindset we do not see very often, as fear and greed are such an integral part of the market. Nevertheless, when one sees it is very real and welcome.
- Perhaps the grinding, halting character of the recent rally is fitting. This entire bull market has often appeared as a grudging, measured climb rather than a burst of upside energy. This has kept investor sentiment in check and, so far, has prevented equity prices from advancing too far beyond what the corporate and economic fundamentals merit.
Nicely put, I might say. The above characterizes the last 4 ½ years for sure, and it certainly characterizes this year, as the market has continually recognized reality. Each time it has come to the new heights achieved at the end of last year, the market has retreated to a secure range where it can wait, watch, evaluate, and revaluate. It is a cautious market and rightfully so. Yes, the above is real – not too much up and not too much down, just enough to keep things stable.
- McMillan Analysis, a longtime market handicapper, points out that market breadth – the running tally of stocks rising versus falling – hit a new high this week, which speaks to some decent energy underneath the indexes. Have the bears missed one too many opportunities? We still await resolution on that question.
The above asks an interesting question, and it suggests that the market could be in for a major pullback. Going back to the previous excerpt, I would say “major” will not happen, but a pullback of some type could (that 50-50 thing is real), given the current character of the market, the over-reliance on lagging economic indicators, the lackluster nature of corporate profits, and the insistence of the breathless on pushing bad news.
What is real, though, is the market understands that all of the above create opportunity for short-term traders, but they mean nothing for long-term investors, which, in the end, represents a huge chunk of market change.
- The strong dollar and reduced capex spending by oil-field firms combined with a harsh winter and softer global demand to slow U.S. growth at the start of the year.
What is real is that the market understands the analysis above, which, along with myriad other analyses this year so far, are the same analyses that came out last March, and the March before that, and, yes, the March before that. It happens every year, and the market knows this, which is why it is not freaking out Q1 of this year looks dismal, economically speaking. This is real.
Here is something else that is real – the global economy is on the verge of either leaping forward or declining, based on two major issues needing resolution – Russia’s meddling in Ukraine and Iran’s nuclear power issue. Gotta love the 50-50 thing, right?
- U.S. and European penalties enacted over Russia’s actions in Ukraine limited access to international financial markets and spurred outflows of capital. While officials are raising expectations for a quick turnaround that may put the economy on track for growth in the fourth quarter, consumer demand is reeling as job losses and the fastest inflation in 13 years choke household finances.
It would seem Russia, aka Putin, would see the light here fairly soon and stop its bullying in Ukraine. If it does that, the EU and US sanctions go away, which will help its economic issues tremendously, which will allow it to dismiss it sanctions against the EU and to re-engage with the EU as a trading partner, which will then help the EU and Russia heal economically.
As to Iran …
- American and European energy and banking sanctions continue to hammer business. Domestic investment has stalled. Several state-owned banks are said to be close to collapse. Efforts to circumvent sanctions have made an already corrupt country worse: Transparency International, a Berlin-based anti-corruption lobby, ranks Iran a lowly 136th out of 175 countries in its index for 2014.
Both countries have to capitulate in order to stave off economic collapse. It seems logical, reasonable, and sane, that these countries, along with Greece, will ultimately have to save their countries, and soon. And if they do, there will be a reason for the long-term market to celebrate and, perhaps, climb out its recent range-bound existence. This is real, for sure, and the odds of Russia, Iran, and Greece giving in are higher than 50-50, I think, but this is just a guess. Really, it could go either way.
Trade in the day; invest in your life …
