Perhaps others out there find themselves a bit perplexed by some recent headlines, market action, and miscellaneous news events. Let me try out a few of my personal “head scratchers” on you for your reaction (and also provide a brief sense of the “Conventional Wisdom” answers, some of which make sense and some which do not).
Why did the market recover more than half of its losses Friday, after the absolutely dismal employment report? I think most of you know the gory details of the jobs numbers and almost complete lack of any redeeming internals… no need to rehash here. The market shrug-off was surprising, to say the least, as many expected a down day of close to 200 on the Dow, while the final number was down a mere 62 Dow points and 9 on the S&P. (Conventional Wisdom: Earnings season fast approaches and the expectation is for another strong performance. Also, whispers of further stimulus and perhaps even a QE3. And who can really trust those darn Federal numbers anyway?)
Why are several retail sector ETF’s making 10-year highs? With the unemployment situation, weak real salary growth, gas and food prices soaring, housing values down, and mall vacancies at record highs, does this make any sense at all? (CW: Many retailers reported strong June sales and expectations are for a strong second half and release of “pent-up consumer demand”. Part of the truth is Amazon and Netflix are included in many of the ETF’s and have had blow-out years…additionally many discounters and very low-end dollar-type stores doing well. All that said, still hard for me to grasp).
Why is the Dow Transportation Index making ALL-TIME highs? Coming off one of the worst recessions in U.S. history and GDP recovery at a rather weak 1.5-3% for the foreseeable future, how does one explain this? (CW: Easy monetary policy, favorable industrial company P/E’s, stronger than expected corporate earnings growth, and a little bit of “bad news is good news” as it relates to the FED’s “zero interest rate policy”).
Why is Apple worth $310 on June 20 and $360 on July 8? Has anything fundamentally changed with the company in that period? (CW: obviously, high-beta stocks will exaggerate overall market moves in either direction and mega-caps lead the market up and down. Also, the sell-off on departure of retail head Ron Johnson overdone and AAPL likely making its typical run-up into earnings).
Why did the International Energy Agency (IEA) and the U.S. Strategic Petroleum Reserve (SPR) release 60 million barrels of oil on June 23 with oil prices testing recent lows? (CW: past releases from the SPR have had some impact on driving down oil and gas prices and Pres. Obama is desperate to show some positive economic action. Unfortunately, with 60 million barrels now representing about 16 hours of global consumption, effects were short-lived and may ultimately backfire with the released oil reserve perhaps eventually having to be replaced at higher prices).
With the year more than half over, why do Morgan Stanley and Goldman Sachs still differ so much on their official year-end S&P outlooks? Adam Parker at Morgan reiterated his year-end call this week for 1238 year-end S&P, while Goldman has not changed its outlook for 1450. With both houses employing the “best and brightest” and viewing the same economic data, the difference in calls is quite striking. What chance do we mere mortals have of reading the tea leaves? Will we see a repeat of last year’s Fall rally, continued chopping within the current range, or a meaningful and lasting correction? (CW: Morgan cites lower margins and a stock multiples going forward, GS has a far more aggressive stance on global growth.)
Why does the Obama administration continue to suffer from “foot in mouth” disease after poor jobs reports? Last month it was Austan Goolsbee resigning as Chairman of the Council of Economic Advisors after some ill-considered words following the poor jobs report, calling it a mere “bump in the road to recovery”. Now it is Senior Advisor David Plouffe getting slammed for being insensitive to the pain of millions of unemployed, saying this week “People won’t vote based on the unemployment rate.” (CW: the Obama administration continues to try and spin the numbers but desperation can create some very awkward moments with the press. Trying to spin 18,000 jobs created when 150,000 monthly jobs are needed to absorb new entrants and well over 250,000 per month to get back to “reasonable” employment levels is a no-win situation. Some estimates have pegged $1.2 million in stimulus spent for every job created since the official “end of the recession”.)
Why are people obsessed with sharing every intimate detail of their lives with others over the Internet? I may finally have reached my saturation point on reading about every possible permutation of “social networking” and “social media”. But there is more to come, plenty more. One of the hot Silicon Valley projects is refining the development of “personal video cameras”, worn on one’s person, which will record real-time experiences with sound and visuals. All the better to share one’s every waking moment with the world. (CW: The concept of “social networking” has been around since the days of the cavemen and technology is simply taking it to new levels.)
I will close it there for now, although there are many other things out there which keep me wondering: what will come next?
Note: The Underground Trader posts are authored by a long-time friend and colleague who specializes in trading futures and options. The Underground Trader is a very close watcher of the indices and is a market junkie who cruises message boards, trading groups, news feeds and opinion sites for any edge he can get. Do not bet the ranch on any of his comments but they are usually interesting and definitely food for thought.
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Even Bernanke has said economic growth in the 2nd half is "UNKOWN" Nobody has a clue vas a vis Goldmand and Morgan Stanely wide disparity in the year end S&P 500.