It only requires a brief glance at the charts of the stock market indices (especially the NASDAQ) to see that the trend is now down. And in all honesty, given the state of the earnings parade, this isn't terribly surprising. When Google (GOOG), IBM (IBM), GE (GE), DuPont (DD), 3M (MMM), Intel (INTC), Chipotle (CMG), United Parcel (UPS), Amazon (AMZN), AND Apple (AAPL) - especially Apple - all miss, well, even a card-carrying member of the glass-is-at-least-half-full club has to admit that things aren't going so well out there in the economy right now.
With each passing down day, it seems that the sentiment becomes exponentially more negative. For example, although the S&P 500 is just -3.6% from its recent bull-market high, the bear camp's proclamations remind me of the bad old days of last year's European crisis. And to hear my furry friends tell it, things aren't going to improve any time soon.
Maybe it is just the season, but it seems that I am currently surrounded by folks dressed in bear costumes. To be sure, one of my friends and colleagues is a self proclaimed "uber bear." And another provides me with anecdotal evidence designed to dampen my spirits via email. But as of this morning, I count two additional coworkers that appear to have joined the dark side. As such, whenever the market goes into an intraday tailspin (which has been each and every day for the past six days), I'm bombarded with suggestions that the sky may actually be falling this time.
Just yesterday, I received the following from a colleague challenging me to take off my rose colored glasses and look around. The note read: "My "anecdotal" feelings (what I see every day and read between the lines) are strong. This is based on the full networking meetings of the unemployed in my area, the empty storefronts, friends I have in both commercial and residential real estate, the many unemployed or underemployed young people under age 26 or so, what I hear from small retail businesses and restaurants, what the tradespeople say, etc.
The note went on to suggest that I reread the FOMC's latest statement which included some not-so upbeat gems such as: "Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.
For the record, I will admit that the economy is not in very good shape right now (far from it!) and that the earnings season is clearly weaker than expected. As a result, I will agree that some downside corrective action is in order in the stock market. However, I am also surprised at just how negative folks have become - and how sure they are about their less than optimistic outlook. It's as if no one can even comprehend the idea that the folks in Washington could actually avoid sending our economy over the fiscal cliff or that Apple might somehow find a way to sell a couple more iPads than the analysts' guesstimates in the upcoming quarter. But if I gave you a minute or two, I'm guessing that each and every one of you could come up with at least five strong reasons why things are bad right now.
Before anybody decides to go hide under their desks and/or load up their portfolios with some SH, SDS, or SPXU, I'd like to make a couple of points about things that I've learned over the past 30+ years in this business. First and foremost, I've learned that nobody cares what I think about what is happening or what I think might happen next. The bottom line is that unless you are a media star that needs headlines in order to sell your wares, this game is about staying in tune with what the market IS doing (and not worrying about what you think it SHOULD be doing). I've also found that the less emotion you invest in the market, the easier this job becomes. So, when and if you find yourself either really depressed or overly excited about the outlook, take note of your feelings and try to take 'em down a notch or two - it'll help you stay in the game.
And finally, as I've written lately, it is vital to keep in mind that the stock market is a discounting mechanism of things to come. Remember, the weak economy is not new. Unemployment being high is not new. A bad real estate market is not new. Yes, an earnings season that is weaker than expected IS indeed news - and because of the fact that the market had this wrong, we've got a corrective phase happening. But from my perch, the future of the market is tied to the outlook for the economy in the next 6-9 months. And assuming Congress doesn't send us over the fiscal cliff, there is a decent chance that the stock market might don its rose-colored Revo's in the first quarter. But silly me, I'm probably just being optimistic.
Publishing Note: I am traveling on Monday morning and will not publish a report. Daily State of the Markets reports will return on Tuesday.
Turning to this morning... Stock futures are pointing to a lower open after both Apple and Amazon.com missed earnings. In addition, disappointing GDP numbers out of South Korea and weak data out of Japan are being cited as reasons for the weakness. However, it is worth noting that AAPL is trading above yesterday's closing price in pre-market activity.
Thought for the day... Always do right. This will gratify some people and astonish the rest. - Mark Twain
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Wishing you green screens and all the best for a great day,
David D. Moenning
Founder and Chief Investment Strategist
Positions in stocks mentioned: none
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