What Growth is the S&P 500 Pricing In?
Rosenberg suggests there will be no recovery without the consumer. I suggest there will be no recovery in consumer spending, discounting of course "free money" programs like "cash for clunkers".
Of course this all depends on the definition of "recovery". At best, I think we have a "Recoveryless Recovery" before the economy slips back into a double or triple dip recession. Regardless, the stock market is priced for perfection while the odds of perfection are close to zero
The "Trader"/ technical optimist:
Is It Still Okay to Buy?
Long-time readers will undoubtedly recall our discussions of breadth surges and the long-term buy signals associated with such an event. The idea is that when the breadth of the market surges to the upside and advancing issues swamp decliners over a 10-day period, the resulting overbought condition is actually healthy and not something to be feared. As we’ve detailed in the past, history shows that such surges in breadth lead to solid advances over the next one, three, six, and twelve month periods.
So, why bring this up now? Didn’t these signals already occur? The answer is yes; we did get breadth surge buy signals in late March of this year. And in keeping with history, the market’s ensuing climb actually exceeded the average gains projected over the next three months.
But without further ado, the point is that the blast from the July low has triggered another round of breadth surge buy signals from a wide variety of indicators. And cutting to the chase, this means that the outlook for the stock market going forward definitely favors the bull camp.
For example, our old standby, the 10-day advance/decline ratio of an equity-only universe flashed a new buy signal on July 21st (the S&P closed at 954.58). History (and the computers at Ned Davis Research) show that stocks have outperformed the normal returns for the S&P 500 over the next months (+3.4% average gain after the buy signal versus the gain of +0.7% for all one-month periods), the next three months (+6.4% vs. +1.9%), the next six months (+12.2% vs. +3.9%), and the next twelve months (+17.2% on average vs. +8.2%).
The "Options Speculator" - (your bookie):
VIX Signals S&P 500 Swoon as September Approaches
Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.
Traders were betting the VIX, a gauge of expected stock swings, would increase 13 percent in the next five weeks, according to futures prices at the end of last week compiled by Bloomberg. That’s the biggest spread since August 2008, before the S&P 500 suffered the steepest two-month plunge in 21 years. The indexes have moved in the opposite direction 81 percent of the time over the past five years, Bloomberg data show.
VIX futures above the level of the index show investors expect fluctuations to widen and stocks to retreat. The S&P 500 has rallied 49 percent in five months, pushing valuations to the highest levels since December 2004. The S&P 500 gained 2.3 percent last week as reports showed home sales rose and the unemployment rate fell.
“It’s a danger sign,” said Ronald Egalka, a 36-year options trader who oversees $8 billion as chief executive officer of Rampart Investment Management in Boston. “People expect volatility to pick up in the future, and that implies that there’s going to be a downward movement in the market.”
Obama trumpets signs of improvementa
President Obama, armed with welcome - and somewhat surprising - evidence of an economic recovery, declared yesterday that “the worst may be behind us.’’
While many economists predicted, and White House officials feared, that the jobless rate would top 10 percent for July, the national rate declined slightly to 9.4 percent last month from the 26-year high of 9.5 percent in June - the first decrease since April 2008. The Labor Department reported that employers cut 247,000 jobs, the fewest in a year.
“Today, we’re pointed in the right direction,’’ Obama said in brief remarks in the Rose Garden hours after the unemployment report. “While we’ve rescued our economy from catastrophe, we’ve also begun to build a new foundation for growth.’’
He asserted that job losses are at half the rate when he took office in the worst recession since the Great Depression and noted that a week ago, the government reported that the economy shrank by just 1 percent in the second quarter, also better than forecast.
I'm not an optimist. Just a realist, I think the worst is behind us economically - and that the recovery is going to be very mute. No bang here. As such, I don't think it's a great time to speculate on "rocket" stocks. Keeping portfolios in balanced/growth portfolio makes some sense to me right now.