I’ve been hearing a
lot of chatter rationalizing the weak market the past few weeks – as well as
euphoria for yesterday’s rally. I must take issue with much of the econ-blather
coming out of my screen lately:
Seasonality? It’s been a no show. Pre-empted by the overextended Q4 rally, it
certainly has not helping lately;
Mutual fund inflows? Also MIA. Institutional buying and overseas appetite for U.S.
equities are similarly missing;
Earnings? While 15.55% year-over-year earnings gains is respectable, it’s
the unintended beneficiary of high Oil prices from energy firms – back out that
sector (Energy sucks the air out of the room for every other group) and the
S&P500 gained a mere 10% Y-o-Y. While that’s not bad, it represents a
broader negative trend. Either a 10 or 15% profit gain reveals the continued
deceleration of earnings momentum. This is foreboding for equities 12 months
inflation? Hardly. Inflation is by any measure rising –
commodities are in the midst of a 2-year rally; Producers are being squeezed –
and they have been having a hard time raising their prices, squeezing margins;
rates: The fact the long term rates have been
stable while the Fed tightens only tightens the yield curve — and that is
hardly a good thing.
The bottom line is that the above reasons are not why the market hasn’t gone
higher since 2005 began – they, are instead, an explanation as to the longer
risk factors to the markets in the back half of 2005 and into 2006.
As to yesterday’s
It was NOT particularly impressive. Internals were only fair, with the
OTC A/D a mere 8/7, and up/down volume barely over 2 to 1. NYSE, A/D was 17/15.
up/down volume even less impressive 7/5. Volume was similarly lackluster.
I am not yet
convinced yesterday’s rally (and today’s follow through) is the end of the
downward action. While I continue to expect a lift off the lows in late
January/early February, I would prefer to see much broader participation (i.e.,
advance decline), a significant volume thrust, and much, much stronger volume.