Despite all indicators the market remains irrational
At zenruption we have consistently called the indicators of a stock market downturn. Apparently, the stock market doesn’t feel the same as we do.
Oil trends back up at the mere scheduling of another round of OPEC talks. Small beats on profits that are half the prior year cause glee and price to earnings ratios that don’t adequately reflect the reduced profits. Analysts have reduced their expectations to the point where it is easy to beat them.
There is some hope in a lower dollar, as manufacturers will find it easier to sell products overseas, yet manufacturing jobs have been declining in the monthly jobs reports while lower paying service industry jobs trend up. Wage gains have been slightly better than expected in the prior month and inflation still pretty tepid at 1.7 percent. Consumers still stay very muted in their spending and have been saving most of their reduced gas expenditures.
A lot of investors with short positions have bought them back and moved into going long on stocks in order to catch the rally. Companies have continued to take on debt to buy back their own stocks. Both have been driving gains.
China is still an issue. George Soros said yesterday that their economy is looking like the United States right before the 2008 financial crises. When it all actually plays out is another question.
Lastly, 1st quarter gross domestic product is projected to come in well below 1 percent.
The good news is that we aren’t in recession so far. The bad news is that growth is extremely tepid. The market might be ecstatic to see that cheap money will most likely continue from the Federal Reserve in the form of low Fed Funds rates, but pushing values higher when they aren’t justified, is a very bad thing.
In 2007, you could drive around any neighborhood and realize that the house selling for $400,000 was probably worth half of that in a sane housing market. When will investors start to do the same thing as they drive around the financial neighborhood?
At this point, all immediate bets are off. The psychotic person often has no idea they are psychotic. The stock market is very much the same.
Our bearishness continues but the timelines are becoming far less certain.
Lina Martinez is a contributor to zenruption’s money and life sections. We love having our regular market talks with her and trying to anticipate the next market movement. The market is definitely frustrating right now but it is a good excuse to visit the bar and discuss.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license