May was a great month, honestly!
Yes, the market had a miserable (from a price-action standpoint) May, and it’s taking yet another hit today, biggest since April… Yes, the May Jobs # stunk… Yes, Europe’s a mess… Yes, the dollar’s rallying… Yes, Oil’s “tanking”, etc., etc…
Here’s a different (legitimate) angle on these events:
1. Stocks remain compelling from all angles but one… That is they’re cheap (historically speaking) relative to earnings… Companies are cash rich… Profit margins are wonderful… Money is cheaper than ever… The bond market has nothing to offer… 180+ of the S&P 500 companies have increased dividends this year… And, per the great John Templeton “bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria” – suffice it to say euphoric we ain’t… So what’s the “but one”? Policy, of course…
2. Stinker of a jobs #… Believe me, you’d rather see companies playing it ultra-safe and hiring only when they’re confident that they can sustain new employment long-term… It’s way too soon to throw caution to the wind… Policymakers have got to wake up and create certainty by getting (frankly) the hell out of the way…
3. Europe is coming to a head sooner than expected… Coming to a head means they’re either going to have to put their debt situation in a cast (as opposed to a band aid) or, let the chips fall where they may… Expect the cast, and therefore expect that we’ll be wrestling with Europe further down the road – when the cast comes off…
4. The dollar’s rallying! That deserves an explanation point, two even!! “They” say consumer spending is 2/3rds of the economy… When the dollar’s up, the consumer has greater purchasing power… You’d think that’d be a good thing… However, traders don’t give a rip about anything beyond today… To them it means U.S. goods are more expensive to foreign customers (i.e., bad for exporters) and deflation (possibly)…
5. Oil prices dropping like a rock! Wonderful!! Seriously – that’s how it’s supposed to work… Economic growth slows, anticipated demand wanes, prices decline, consumer has extra dough to spend (better to save) elsewhere… Elsewhere improves, economy improves, voila!!
I wrote the following back in October 2009… It so applies to what we’re experiencing today… In fact it so applies to myriad periods I’ve experienced during my 28 year career (BTW on October 6, 2009, the Dow was 2,400+ points below this morning’s level)…
The October 6th (2009) issue of Business Week featured the following two headlines; The Market Will Keep Going Up, the storm has passed, and the old rules of risk and reward are back, and