Despite signals from the bond market that there is a 60% chance of recession and little more than promises from European leaders that they are just about to fix their debt and banking crisis, investors have gorged themselves for five-days at a smorgasbord of cyclical treats and a buffet of the beaten.
A look inside the rally shows stocks like Hewlett-Packard (HPQ) and Alcoa (AA) leading the way in the 1,000 point, one-week rally on the Dow Jones Industrial Average. Stocks that were left for dead are suddenly springing to life. In the case of H-P and Alcoa, even with their recent bounce, are still unable to escape the ugly reality that they are down more than 35% year-to-date.
And it's not just a handful of individual stocks that have fueled this latest rebound, which is the fourth rally of 5% or more in the past two-months. Certain sectors, particularly those of a cyclical bias, have been head and shoulders ahead of the rest, specifically the Materials (XLB), Energy (XLE), and Industrials (XLI).
A look at the global markets shows Italy, Germany, and France have outpacing the U.S., and all put up double-digit gains in a week. So has the Emerging Markets Index (EEM) and Crude Oil. At the same, the ominous laggard in all of this is China, where the benchmark indexes have not participated with the rest of the world's rally, and instead has extended their slide towards a two-and-a-half year low.
Whether you trust the sustainability and rationale of the rally, the numbers speak for themselves. And as Macke and I discuss in the attached video, this latest pop is another reminder that there is a veritable tidal wave of money eager to get to work on the slightest uptick in sentiment. Get caught on the wrong side of it and you're toast. Underestimate it's power and you're sunk.
In the near-term, the risk in stocks is currently to the upside. Sure expectations are awful, sentiment is fragile, and visibility is nigh, but since when did Wall Street worry about that stuff?