Ketchup, airlines, and computers all received a nice bump this week, as M&A activity in the US economy picked up dramatically. Yup, the word on the street is that some of that big cash-on-the-books is starting to flow toward accretive activity. Somebody said something about this recently in this column – soon enough, some of that $3 trillion in corporate cash would soon find its way back into the economy …
I remember a while back when a reader challenged me on my understanding of the gold trade. My suggestion that gold would find its way downhill as the economy improved struck that reader as “so na?ve it was laughable.”
- Gold prices tumbled 5.5 percent in the fourth quarter, the most since the three months ended June 30, 2004, as signs of improving economic growth reduced the appeal of the precious metal as a haven.
As you all know, I believe in Occam’s razor – the simplest explanation is usually the right one. When it comes to the market, I find this is most always the case. Thus, I argue, keeping it simple when working the market is one way to succeed. There are those (and these are many) who make a living portraying the market as more complex than it really is. Don’t watch the magician’s moving hands. Keep your eye on the shiny object at all times.
- The Empire Manufacturing Index – one of the more closely watched indicators due to it being a current report – was reported at +10.04 in February, which was well above the consensus expectations for a reading of -1.6 and a big improvement over last month’s reading of -7.78.
- The preliminary February reading for the University of Michigan’s Consumer Sentiment Index was reported at 76.3, which was above the consensus reading of 74.3 and last month’s final reading of 73.8.
The US and global economies are getting better, despite the “portrayers of the complex” and the “sellers of doom” suggesting otherwise. Simply, as the fundamentals improve, so goes the market inch by inch, or maybe a foot or two at a time, and then with a step or two back, or one step forward, one step backward, or … Heck, I am making it too complex. “Keep it simple, dude.”
- In the longer term there tends to be a greater correlation between the fundamentals and market direction.
Keep in mind, though, the market is a leading indicator. It looks to the future some 6-9 months out. Right now, the fundamentalists are looking at the economic data, and that is helping move the market forward, but let’s not forget about the technicians out there. They like numbers of a different sort and they too play a huge role in market movement.
- The data shows that since 1928 – a period that includes secular bull and bear markets – after the S&P makes a new high coming off of a bear market, the index has sported a median gain of 18.4% over a period of more than a year.
The S&P recently made a new high and it is but a measly 3% (give or take) from its historic high. Make of the above what you will, but the market moving higher just might be that simple.
The recent talk of a “Great Rotation” from bonds to equities has many of the confounders spinning theories about why or why not, or even if, this is happening. Well, when the regulatory folks speak, at a minimum, we should pay attention.
- FINRA got into the act today by issuing a warning about bonds. In an investor alert, the Financial Industry Regulatory Authority Inc. told investors that in the event of rising interest rates, “outstanding bonds, particularly those with a low interest rate and high duration may experience significant price drops.”
It seems to me when you lump all the complex variables together, you come out with something that looks like this – the market train is leaving the station and more folks are coming on board because they don’t want to miss the ride. At some point, the train will become too crowded, but that just might take a while. For those on board, though, enjoy the ride.
I don’t know, maybe that is just too simple …
Trade in the day; Invest in your life …
