Well, we did not get it all back yesterday, but most of what was lost the day before that returned. And why did the market not devolve further, especially since the Fed announced it has a plan to exit its loose money policies?
- The Federal Reserve has begun detailing how it plans to ease the U.S. economy out of an era of loose monetary policy, indicating it will end its asset purchases in October and appearing near agreement on a plan to manage interest rates in the future, according to minutes of the last Fed policy meeting.
Does anyone else find it odd that the Fed notes clearly indicate a plan to end the easing policies, but the market did not tank? After all, the talking heads, celebrity analysts, and the breathless media in general have been telling us for some time now that a) the US economy cannot stand on its own feet without the loose money policies and b) the market is only as high as it is because of Fed policy. Now we have an exit plan laid out and the market says, “Okay, we can deal with this.”
- But more than any modern bull market, this one stands alone in that it’s squarely out of step with economic growth. It’s being driven higher by just a few wealthy participants and traders who have tacitly, perhaps even unknowingly, agreed to drive prices higher.
At least David Weidner is not saying the Fed is propping the market up. That’s refreshing; however, he is saying it is just a few wealthy individuals who unknowingly have pushed the market higher for, oh, some five years now. Good job and amazing work you few wealthy folks! What power you have. Well, don’t give up on the market now. We need you to keep on buying to save us all from our stupidity.
Actually, Mr. Weidner is making an historical argument that the current bull market will fail. In all fairness, he also gives some credit to the Fed for those wealthy folks propping up the market. With interest rates so low, where are they going to put their money after all? He supports his assertion about the few wealthy holding this all together with some stats about how the retail investor is out of the market, relative to mutual funds. His stats suggest retail money is leaving mutual funds, contrary to other stats which show increasing inflows.
My point is: leave the hilltop screamers to cry in the wilderness where only the true believers can hear them. Quit giving them a soap box from which they can warn of the coming apocalypse.
- In short, stocks have become more attractive not because of a surging economy or strengthening corporate profits, but because they are the last-place finishers in an ugly contest. That’s a significant difference with boom markets of the past.
Aside from yet another analysis suggesting this market at these heights is not real, stay focused. The market apparently brushed off the Fed notes suggesting the false floor will soon go away and, as well, it apparently liked Alcoa’s earnings and its upbeat future assessment. Alcoa was up 5.5 % after the news.
Yet, the market is still a bit wobbly. One day does not a true bull rally make. There are those who still believe the market is going down, and those folks are putting their money where their mouth is.
- As of mid-June, the exchange’s [NYSE] short interest rose back to 14.531 billion shares. This is the highest short reading we’ve seen since mid-March, when it peaked at 14.676 billion shares.
So, given that the Fed is out as a catalyst for a market demise and negative geopolitics seems to have petered out as a potential market killer (for now at least), what is left to fulfill the short interest traders’ dreams? The US/global economy and earnings are what’s left and between the two, only earnings are the unknown.
So, here we are – back to earnings as the reason for future market movement. Up or down remains to be seen, but until I know differently, my bet is on earnings coming in at or above estimates, and that gap between P/E and earnings growth I mentioned yesterday, well, I suspect it will shrink as well.
For now, I am getting ready to disembark on my sailing trip. If you don’t hear from me on Friday, it means I cannot get cell service on the ocean, or the boat sank. Of the two, I choose the former, as I really hate treading cold water for a long time.
Trade in the day; invest in your life …
