At the risk of killing the suspense surrounding the earnings reports on deck for the coming days, David Kotok of Cumberland says the pros and cons of the economy are already well established and unlikely to change any time soon.
“It takes a lot of time to recover from a big cyclical downturn which piled on a big financial crisis. You don’t bounce back so fast,” he explains in the attached video. Sure there are pockets of outsized prosperity in places like San Francisco, New York or even North Dakota, but if you take the country as a whole what you get is slow, if any, economic growth and little in the way of profit margins.
In other words, the country looks an awful lot like Walmart’s (WMT) top line for the last few years. There’s nothing particularly horrible about the macro economy but it’s hardly a rousing success story.
That being the case, what the stock market has been doing for much of 2014 makes quite a bit of sense. Good companies are able to find muted growth, but stocks that are priced on the notion of explosive growth are taken out and shot. The market has earned a rest and repricing after 2013 when the S&P 500 (^GSPC) rose 30% and took most stocks along with it.
For the most part the market looks most overvalued to those who’ve been on the sidelines for the last five years. To those who have been invested it either looks fairly valued or due for a pullback. Either way it’s hard to find a good reason to buy, but bears have learned better than to short.
“I see markets in a gradual but rocky uptrend because we have a bewildered set of investors,” surmises Kotok. “Those who have missed the stock market and gave up 30-some percent now don’t know what to do. They were afraid of stocks then and they’re more afraid of stocks now because prices are higher. A bewildered mass doesn’t move.”
With summer set to start unofficially on Friday afternoon investors are likely to choose the beach over staring at their portfolios and reacting to every fluctuation. After the baffling start to the year we’ve earned a summer of peace.