Some 15 weeks after the March 666 lows, indices are 40% higher. After that sprint, might the buyers be suffering from some fatigue? Are the markets now fully reflecting a second half recovery?
Are we priced for perfection?
Those questions are looked at in Barron’s Up & Down Wall Street column this week:
“There were hints, as well, that bullish sentiment, which for a spell remained fairly constrained, had escalated to something approaching euphoria. Investors Intelligence readings of advisory sentiment showed most of these supposed savants, who often function best as contrary indicators, have come a bit late to the party; in recent weeks, the percentage of bulls among them have registered in the mid-40s, compared with the low 20s for the bears.
Moreover, trading took on a distinctly more speculative tone, with small stocks chalking up big gains despite their conspicuous lack of very much in the way of sales and nothing in the way of profits or prospects. And perhaps the most persuasive evidence of the gamier spirit abroad in Wall Street is that, despite the mounting demolition of the commercial-property market, Morgan Stanley plans to sell re-securitized commercial mortgages.
Which, as one portfolio pro acidly observed to Dow Jones Capital Markets, amounts to peddling tarnished assets nicely repackaged with higher ratings. That kind of thing has been going on in residential asset-backed securities in recent months, presumably fueled by the notion that the housing decline has bottomed. But that it now has spread to commercial mortgages when things are getting notably worse is clear indication that the mind-set and, indeed, some of the very stuff that got us into such a jam is back. Alas.”
Hence, the expectation that the rally may have run its course, and is heading south.
That seems to be too pat for Mr. Market, who delights in confounding everyone. A more frustrating course of action would be to back and fill — but not collapse –and keep going up (albeit at a slower pace) after some digestion over the summer months. Sucker some more people in, only to retest the lows in September / October period.
That’s just my guess . . .
Under the Gun
Barron’s June 22, 2009