The yin and yang of the market is like the movement between day and night. How is it that the market can be so bifurcated, so directionless, so confused? If you look at the global fundamentals combined with European and U.S. debt issues, you could conclude the market should have a downward bias; yet for every selloff in the market, there is a day of wholesale buying. The sentiment is such that Warren Buffet’s words are ringing loudly – “When everyone is selling, buy; sell when everyone is buying.” Okay market, don’t take Buffet’s words so literally.
Perhaps the consumer contradiction is part of the confusion. July retail sales came in above expectations, but consumer sentiment in early August dropped to its lowest level since 1980. Then again, maybe the conflict within the Federal Reserve is also a contributor. On the one hand, their recent notes point to a weakening economy, yet some individual members are out there articulating the opposite. Heck, what do they know, anyway?
The reality is the confusion is actually good. It means the market has not lost all confidence in the future. Witness the spate of news yesterday about the strength of insider buying and corporate buybacks. Forget all the surveys, actions speak louder than words. The corporate world is saying the future is not doomed. Their actions suggest a market bottom is near, and the natural flow of that is a market that stabilizes and then rises. Of course, the corporate world can be wrong, just like everyone else.
Confidence is a fleeting thing, especially when the media can change the flow of news on a dime. One day, the breathless media is highlighting every “permabear” out there, and the next, it is giving us the S&P 1400 and DIJA 15,000 club members. No wonder consumer confidence hit a 30-year low this month.
At some point, the market will settle down. If you look at last August, you can see some of the same sentiment, although I must admit, last year it was mostly selling in August. At least this year, the bulls are fighting back strongly. We will just have to wait a bit more to see who is the stronger of the two battlers. Well, you all know me, so it should be no surprise that my money is on the bulls.
One reason is that when you put all the contradictions, all the fundamentals, and all the debt issues aside, what you have left are corporate profits. Those have held on through all of this turmoil, and, no matter the consumer confidence surveys, if the consumer keeps spending money, corporate profits will remain on the right side of all this mess. Given that oil prices have dropped considerably as we are nearing the end of the driving season (Labor Day), and that immediately after that we will enter the biggest of all big buying seasons (the holidays), I suspect we will see more spending right through the end of the year. Now, if those other problems can get settled, you know, the ones I just put aside to make my bullish argument …
Trade in the day – Invest in your life …
