Money seems to be moving again. Is it the beginning of a trend, or is it short-lived, as the statement below suggests?
The best and the worst, the most-shorted and the highest-quality are poised to move higher as funds start rebalancing into the quarter end to make up for underperformance.
The big issues remain on the table, so one should question a two-day uphill burst such as we have seen in the past two days, yes? Well, maybe not. It is possible that the money flow is changing because, as I said the other day, big money players are tired of not making money on their money. It is possible that the valuations are such that money is flowing into the “safest” of blue chip, dividend paying equities, is it not?
As of Monday’s close the S&P 500 dividend yield remained higher than the 10-year T-note, a move seen only 20 times in the past 58 years on a quarterly basis according to S&P research.
The above is quite the statistic. Given that some 387 companies in the S&P 500 pay dividends, this presents an opportunity to safely park money with a bit of ROI and no long-term commitment. Did I say safely? Why, yes, I believe I did. But how is money in the market safe with all the uncertainty around European debt, U.S. debt, and the global economic slowdown?
My answer goes back to a premise I wrote about the other day – the cake is baking with all the above ingredients. I suspect the market is consolidating, forming a foundation of sorts. I suspect the panic around the big issues of the day is morphing into a sense of “wait and see.” I suspect, as I also wrote the other day, the notion of a total market collapse is fading.
Of course, everything I said is suspect, as I have also written that no amount of rational thinking can replace the reality that the market can act irrationally. So, no matter how much I know, or think I know, the market will do as the market does, and it will do it when it wants to do it.
Nevertheless, one has to have a sense of market direction, and my sense is the above. Now, this is not just intuition, at least not totally. The news out of Europe that a coordinated and comprehensive plan is developing to address the financial issues of sovereign debt and undercapitalized banks certainly plays into my thinking. The belief that the congressional “super committee” tasked with coming up with a plan for long-term deficit reduction will do its job with little political theater contributes as well. The recent earnings guidance from Oracle and General Mills is another piece. The fact that the Fed is committed to keeping the cost of money low for some time and to depressing short and long-term interest rates is an even bigger piece because that reality is what could spur the economy and “force” money into the market.
Finally, if the consumer comes out and spends some money this coming fall, corporate earnings could once again defy the reports of their imminent demise … So there!
Trade in the day – Invest in your life …
