If a market move is warranted by earnings and fundamentals, then yes, a sharp move higher is great. But if the market is rallying based on false hopes, or even worse, is in a bubble, then it’s actually very bad for stocks to move higher because it means the ensuing collapse will be even more violent (a la 2000 and 2008).
With that in mind, this market has essentially moved up almost non-stop since December 2012. This entire move has occurred against worsening economic fundamentals.
While the cheerleaders on TV applaud this move, it’s important to consider the “big picture” for the economy and market as a whole. Here’s the big picture:
1) Earnings, the primary driver or prices, are falling. If you exclude financials earnings for the last quarter, earnings are down 2.9% year over year.
2) Economic activity, the other driver of stock prices, has fallen too, leaving stocks diverging sharply to the upside.
3) The “smart” money is fleeing the market en masse (institutions, wealthy private investors, etc.).
4) The problems in Europe have not gone away. They’ve been shuffled under the carpet until Germany’s elections. But Spain, Portugal, and even Italy are rapidly descending into financial chaos and insolvency.
5) Japan massive experiment with monetary policy is proving to be a disaster with industrial production falling while costs of living are rising. Japan is skirting on the verge of financial collapse.
6) China is experiencing a hard landing, if not economic crash. If you look at their electricity consumption their GDP growth is barely 2.9%. Yet the entire world continues to believe the People’s Republic will produce 7% growth ad infinitum. Good luck with that.
"If a market move is warranted by earnings and fundamentals, then yes,"
That's complete BS. The Nasdaq ran up 100% in the late '90s and it had NOTHING to do with any traditional P/E ratios. Moves only being allowed by earnings and "fundamentals" is the MYTH you've been sold. What "fundamentals" made APPL drop from $200 down to $85 in one year and then go to $700 in less than 4 years? State what fundamentals caused this to happen or admit it's all a load of BULL.
The “smart” money is fleeing the market en masse (institutions, wealthy private investors, etc.)."
On the surface that sounds reasonable.
But this has always been a bit of a troublesome issue for me.
Assume as most do, that the "smart money" as you define them ((institutions, wealthy private investors, etc.). is in possession of the preponderance of the wealth, then we must also assume that the "dumb money" has an equal or greater sum of wealth from which to buy from the "smart money".
Does all the "smart money" get smart at the same time the dumb money gets dumb?
Is Lloyd B mr goldfinger, the only one who really knows the answer?
Great analysis Pandora. I'll add that "bellwether" big blue, IBM is a disaster, as is FSLR who reported their earnings after the bell. It seems like the QE advance is focused on the overbought momentum stocks, like TSLA and LNKD, as well as all the bullish ETF's. I have to believe that we're in the early stages of something more than just a normal correction.
The market seems to ignore everything, including the terrorist warnings out there. Although unlikely, a black swan would destroy this market. Thanks for your thesis, and I agree 100%.