As highlighted in the last few “Market’s Bill of Health” reports, the S&P 500 has been showing weakening breadth and momentum which typically occurs before short-term tops. In prior reports it was shown that weakness in cyclicals was the culprit as the defensive sectors led by health care continued to power higher. Currently, however, recent movements in the cyclical sectors suggests that their underperformance to the broad market may be ending, with a weakening USD providing the catalyst.
Barry Ritholtz—money-manager, author of Bailout Nation, and writer for one of the top financial blogs in the country—recently spoke with Financial Sense Newshour about the "big picture" on jobs, the economy, and stock market. Here he explains another reason why the stock market continues to move higher while jobs go nowhere.
The markets have sold off from multi-year highs in some market averages and all-time highs in others. In the glory years a 5% pullback was met with greedy buyers looking to get into stocks they felt they had missed. After the debacle of 2008/2009 many look at ANY move lower in the averages as the beginning of another rout.
It appears we are in the process of starting the first correction of the year but given recession risks remain a remote possibility and the long-term internals of the market remain sound, any correction in Q2 will likely prove to be a buying opportunity. A quick summary of the state of the economy and markets is provided below.
Picking up from last week’s article, I wanted to continue to develop the notion that the market is rotating out of growth and into lower beta stocks. In addition, some other signs of de-risking are developing.
Steve Hanke is a professor of Applied Economics at The John Hopkins University and also a Senior Fellow at the Cato Institute in Washington, D.C. Due to his wide influence, expertise on international monetary affairs, and advisory role to numerous governments, Professor Hanke was named one of the twenty-five most influential people in the world by World Trade Magazine.
"They" being the market. You or your broker or your friend has this great investment “guy” that can come up with a whole host of reasons why the market should zig or zag. When the market goes against us we scramble to come up with reasons why it shouldn’t be happening or why the market is “wrong”.
The risk-on versus risk-off trade, aka RORO, has been the modus operandi (MO) of many investors over the past several years. The Fed is going to goose the market? I’m going all-in the beta trade. Europe is imploding and the euro will cease to exist tomorrow? Sell, Sell, Sell!
The market continues to march higher in 2013 as the market’s long-term breadth and momentum remain strong across nearly every sector. However, the weakening in the daily numbers for breadth and momentum, particularly in the cyclical sectors, suggests near-term caution as we may be in store for a pullback similar to September-November of 2012.
With the US Fed’s third quantitative easing program since 2009 announced in latter 2012, QE3, we know the Fed is explicitly targeting two key hoped for outcomes. First, Mr. Bernanke has told us he wants to see higher stock prices. So far, so good.
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